China’s equity markets are currently experiencing a surge in foreign investment, with inflows rising 443.9% in the January-October period compared to the previous year. This influx is driven by a bullish narrative that China will dominate global markets, fueled by its technological advancements and manufacturing prowess. However, analysts such as Rana Foroohar of the Financial Times caution that the underlying economic and social issues, including property bubbles and infrastructure overbuilding, make this narrative questionable.
The Communist Party’s ‘engineering state’ model, which prioritizes growth at the cost of societal well-being, has led to rising social discontent. Many citizens are opting out of the system due to pessimism, economic stagnation, and a declining birth rate. The current economic model, which relies heavily on industrial production and is not sustainable in the long term, is under scrutiny as the party faces challenges in maintaining its grip on power.
Despite the apparent optimism, there is a growing concern about the sustainability of China’s export-driven growth. The world’s markets are not big enough to absorb China’s factory production, and the ruling party is not responding to the growing dissatisfaction among the populace. Instead, it is implementing a censorship campaign against ‘excessively pessimistic sentiment’ and not willing to implement structural changes to put more money in the hands of the common folk.
As a result, foreign investors are advised to be cautious, given the unstable nature of the economy and society. The current situation reflects a powerful manufacturing machine sitting on top of a brittle socioeconomic structure, creating a combustible combination that foreign capital is not eager to underwrite.