February 10, 2025: China has numerous economic problems, but the worst has to do with real estate debt and 200 million unneeded housing units. This was a Ponzi scheme facilitated by a corrupt building inspection system where enough money passed to the right inspector made any problems disappear. Eventually this empire of illusions and lies comes crashing to the ground. This bankrupted thousands of Chinese investors and littered the countryside with surplus homes that were already paid for but largely uninhabitable. The oversupply of homes has caused the value of these homes, and many existing ones, to fall by at least 25 percent. The giant firms that built this housing bubble, like Evergrande and Country Garden, have also gone bankrupt, causing huge losses for their institutional and individual investors. To prevent nationwide economic problems, the government provided two trillion dollars in economic relief for the developers, investors and local municipalities that had invested in the housing boom.

All this is an example of unique Chinese economic problems in the current real estate crisis. The usual solutions were not working as well as the government expected. The largest problem was corruption at the provincial and local level. Over the last fifteen years there has been a major effort to purge the false reporting from national economic statistics. The false data problem is not gone but at least it is recognized. This was painful because it revealed that past economic growth was more uneven and less than everyone believed. Many foreign economists had figured this out but now everyone knows. China now realizes it has a dangerous real estate bubble that must be deflated with extreme care because the housing industry comprises about 30 percent of Chinese GDP. Mishandling the housing crisis could have caused major damage to the economy and caused a major economic recession.

China is still trying to develop systems to verify economic data coming from provincial officials because of the risks a major real estate default poses to the entire economy. Government-owned banks and enterprises that hold much of this bad debt have been ordered to tolerate delayed overdue payments on this debt.

There are also political problems. Leader Xi Jinping has made himself leader-for-life and now screens or makes all key economic solutions. Xi isn’t an expert in economics or aware of the complexity of the Chinese economy or historical examples of similar situations. Back in the 1980s China adopted a semi-market economy and shed most of its socialist, state ownership of everything, responsibilities. China is still ruled by a nationalist dictatorship government. This threatens to create a similar situation to the one that occurred nearly a century ago when China had a self-appointed leader-for-life running what was officially known as a socialist dictatorship.

In the last few centuries, China had endured periods when independent warlords ruled portions of a divided China, and Chinese constantly fear this might happen again. For thousands of years the large East Asian area was dominated by the Han Chinese, who were sometimes united, but more often divided into separate kingdoms. After World War II the Chinese communists won a decades-long civil war against non-communist factions and proclaimed a communist dictatorship for China, or at least most of it. There was a long list of neighboring territories that were still independent or belonged to neighbors and China is working its way through those as diligently and non-violently as possible. The most troublesome independent portion of China is Taiwan. After World War II Taiwan acquired protection from the United States before the new communist Chinese government could get organized and do anything about these troublesome Chinese inhabiting the Island of Taiwan.

China is also having problems getting control of territories in the South China Sea which historically were not Chinese. The Philippines and other nations bordering the South China Sea are opposing Chinese efforts to take control of this watery region. In this case the opposition also has support from the United States and several other major powers in East Asia and Europe.

Taiwanese support their government’s resistance to this Chinese aggression. China is still seeking ways to take control of Taiwan and reincorporate this lost province into China. Taiwanese do not want their country to become a Chinese province.

As an independent state, Taiwan has prospered and became a major manufacturer of electronic devices and electronic components which are purchased by companies in the Americas and Europe as well as those in East Asia like Japan, South Korea, and many more in southeast Asia. China has become a major market for Taiwanese electronics and Taiwanese manufacturers have opened some factories in China. Taiwan is still where most of the production takes place, and one reason China has for not attacking Taiwan is to avoid damaging the Taiwanese electronic components industry, which Taiwan has threatened to destroy upon a Chinese invasion. Taiwan is a major world producer of these electronic components and an innovator when it comes to designing new components. While Taiwan has moved some of this production to Europe, the rest of the world would not appreciate China attacking Taiwan and disrupting all that electronics manufacturing and development of new items. A more ominous result would be that China would be cut off from new high tech which it could not produce itself.