by Bryan Perry

June 15, 2021

The classic definition of “a bull in a China shop” is a person who breaks things or who makes mistakes or causes damage in situations that require careful thinking or behavior. I think this metaphor can be applied to the current situation between the growing tensions between the U.S., its allies, and China.

While there are no Chinese vases getting busted, the fragile and untrustworthy relations surrounding Chinese policies may as well be made of cheap counterfeit porcelain. On the one hand, there are heavy-handed tariffs installed by the Trump administration that are still in place, while on the other hand the CCP in Beijing is wasting no time furthering their aggressive assault on freedom in Hong Kong, mass incarceration and ethnic genocide, extortion from Belt and Road projects, widespread semiconductor chip hoarding, and access to Covid-19 information, just to name a few sticking points.

These grievances are in addition to, and come after, U.S. Trade Representative Robert Lighthizer and White House Trade Advisor Peter Navarro went toe-to-toe with China’s trade delegation, led by Vice Premier Liu He, in which Navarro stated China’s “seven deadly sins” harmful to the U.S. economy:

  • Stealing intellectual property (IP).
  • Forcing technology transfers.
  • Hacking computers to steal trade secrets.
  • Dumping products on our markets to put our companies out of business.
  • Giving China’s state-owned enterprises heavy subsidies.
  • Fentanyl trafficking.
  • Currency manipulation.

As it stands now, neither Washington nor Beijing appear interested in negotiating a follow-on trade deal. Instead, economic relations between the two nations appear to be largely stuck while disagreements fester on all the issues noted – past and present. Under the phase-1 trade deal, China and the U.S. agreed to periodic senior-level bilateral reviews of the accord. Senior Washington officials are taking note of all the potential personnel changes in top positions. China is replacing longtime Chinese D.C. diplomats with more assertive and hawkish representatives. It seems China has no problem “threatening the rules-based order that maintains global stability,” according to new U.S. Secretary of State Anthony Blinken.

With the removal of the 10-year (two-term) limit on China’s presidency, Xi Jinping is very likely to remain in power “for life” (he turns 67 today), and that’s a problem for the U.S. and the rest of the free world. Xi and the CCP have just initiated a whole new array of data gathering laws levied against their largest tech companies, a measure that the corporate world has managed to stave off for years – but no longer, as China exerts ever-tighter government control on personal data, which poses obvious threats to China’s own 1.4 billion people as well as all foreign companies doing business in China.

It was the aim of the G-7 meeting last week to challenge China in its brazen behavior, but Western leaders did little from a practical standpoint to counter China’s growing influence, including flexing its military muscle around Taiwan, using forced labor, cracking down on Hong Kong, and launching cyberattacks.

In fact, the summary statement of the G-7 was watered down, with French President Macron saying he was eager to engage China on issues such as climate change. (Talking tough isn’t one of Macron’s strengths.) Macron and his allies have an illusion that free trade will turn China into a global team player, but he is a pushover when begging for access to China’s market while being mute on China’s abuses.

Macron Political Cartoon Image

This rising tension between China and the West needs the cooperation and backbone of the G-7 and G-20 nations in order for China to even consider dialing back any of its long-term ambitious plans for global economic and political dominance, which risks destabilization of supply chains and the free flow of trade.

Negotiating from a position of strength has been China’s strategy for years, but with their economy set to “slow” to a 5.8% annual rate of GDP growth in 2022 – according to the Economic Outlook, released by the Organization for Economic Cooperation and Development (OECD) – China will soon be growing under 5% on a consistent basis, making the previous Chinese economic miracle look tired.

China Gross Domestic Product Growth Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

In December 2019, before COVID struck the world, The Reserve Bank of Australia put out an extensive report on “Long-Term Growth in China.” The study concluded that a range of structural headwinds will constrain growth in the coming decade, posing challenges for policymakers. Since then, China’s total debt-to-GDP ratio has vaulted to over 300%, if you include corporate, household, and government debt, making for a pair of charts (above and below) moving in the wrong directions if you’re leading the CCP.

China's Debt-to-Gross Domestic Product Ratio Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The tipping point for whether China starts to become a responsible global citizen will probably hinge on how its economy performs over the next few years. During the Covid-19 pandemic, 10 of China’s 30 most critically important banks experienced significant declines in their client firms ability to service debts, yet China’s economy managed to emerge from the Covid shock within a matter of a few months.

Many observers of the Chinese economy express concerns about their rapid descent into debt, where a lasting recession of more than a year could trigger a severe banking crisis, leading to an economic collapse. Maybe that’s what will force China to start cleaning up their bad behavior and get back to the negotiating table with a big dose of humility, because I’m not sure any other sort of scenario will.

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

A Look Ahead by Louis Navellier
Inflation Continues to Surge at Fastest Pace Since 2008 (or 1992)

Income Mail by Bryan Perry
G-7 Bulls in A China Shop

Growth Mail by Gary Alexander
“Nice Work If You Can Get It

About The Author

Bryan Perry

Bryan Perry

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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