Will China’s Sick Economy Go Viral in 2023?

In 2020, Wuhan, a city in China, was the source location of a deadly virus that affected multiple nations of the world. Now, the centrally planned Communist economy is apparently delivering an encore performance in the form of an economy that threatens the free world.

Even otherwise robust economic holdouts like the US, UK, EU, Australia, Japan, and India could suffer from the Communist Party’s decisions. Along with an inability to control their own stock and housing markets, China’s political leaders suffer from a long-term case of generally bad decision-making. 

What does the Asian nation’s current dilemma mean for global housing, trade, and other markets? It’s a complex problem that has no easy solution. What is the extent that an ailing China has to depress other national economies?

The best way to get a handle on the question is to examine the individual ways that the Asian nation is already pulling down several core economic metrics all over the globe. In terms of housing, trade, and long-term deflationary pressures, the following points are worth considering.

Housing

China’s domestic real estate giant Evergrande has been emblematic of the nation’s housing woes. Not only is the demand for houses at an all-time low in Beijing and other large metro areas of the nation, but consumer activity is also setting records for low levels of spending. Likewise, recent government reports on industrial production have been grim.

The result has been for Chinese consumers to rein in personal spending and hold onto their homes, which represent almost three-quarters of the average citizen’s personal wealth.

Volatility

As every retail investor knows, volatility is a two-edged sword. Those who currently hold risky assets might experience a negative return. However, forward thinking adults can profit in times of high market volatility.

Trading platforms like those here are a good example of the kinds of tools individuals can employ to short sell certain categories of assets, purchase contrarian stocks and commodities that tend to do well when Chinese companies are in a freefall, and make currency plays that can potentially turn volatility into substantial returns.

Not only does volatility open the door to financial opportunities, but it can shape an investor’s entire short-term trading strategy. It’s safe to say that the past 50 years have included at least 20 that were considered highly volatile trading scenarios, in retrospect and in real-time. While some do pull out of a see saw market, others thrive amid large swings by getting in and out at just the right time.

Deflation

The sluggishness emanating from Beijing and the nation’s other manufacturing centers is palpable in the West’s free economies. Specifically, many US-based corporations are currently experiencing the secondary effects of the Asian financial decline.

Already, the prospective year-end outlook for several US manufacturing and other corporations has turned grim. That kind of bad news follows a second quarter that was in the red.

What is the upshot for US consumers? First, it’s highly likely that the price of many products could soar. At the same time, China-tied companies could experience layoffs and declining profits. Retail consumers in several developed nations might face higher sticker prices on vehicles as well.

There’s even a chance that the deflationary Chinese economy could spread elsewhere, particularly in markets where Beijing has worked hard to establish local ties and trade agreements.

The Big Picture

As 2023 comes to a close, Chinese consumers are strapped. Evidence of their difficult personal financial situation is the current low level of consumer purchases across the Asian nation. With deeply depressed demand alongside a highly volatile real estate market, the domestic economy is in a dire situation.

Even the US, one of the most stable free nations in the world, will likely suffer from its many financial tie ins with Chinese corporations and government agencies. The entire world marketplace is set to take a hit from a spillover of Chinese economic failings.

What Can Individual Investors Do to Shore Up Their Prospects?

It’s easy enough for investing enthusiasts to avoid the fallout from the latest Chinese government missteps. One is to focus on asset classes that are not directly tied to the nation.

Fortunately, there are multiple ETFs (exchange traded funds), stocks, and commodities that are 100% US-based or composed of EU and UK asset classes.

Even though it’s nearly impossible to avoid all ties with Beijing’s economic influence, paying attention to the source of a corporation’s wealth is the primary tactic for side stepping deflation, a sagging Beijing real estate market, and other Chinese financial woes.