‘Definitely Too Risky’: Christopher Balding on Investing in China Heading Into 2022

In this special report, we sat down with three guests: Christopher Balding, senior fellow at the Henry Jackson Society; Clyde Prestowitz, president of the Economic Strategy Institute; and David Goldman, deputy editor at Asia Times. They touch on China’s 2022 economic outlook, what we learned from the past two years, and how that’s going to impact global markets—and even consumers who might not realize it.

Balding says, “The number one issue for China is, first of all, how they see the economy playing out. With 2022 being what I would effectively call an election year in China, they typically really stimulate the economy in these election years. And I don’t think this is going to be an outlier. I think they are going to stimulate the economy. They are also concerned about debt, so I think that’s going to be very important to watch. The other one that I would watch is you do have this slow motion train wreck, for lack of a better term, of the real estate market in China—whether it’s the developers, whether it’s the number of homes that consumers are buying, that is a major issue in China. And right now, there really is no resolution, especially with Evergrande and related type of developers, they’re just continuing to kick the can down the road.”

As for investors weighing the risks of the Chinese market, Balding says, “I would definitely say it’s too risky. And I say that for multiple reasons. Number one, despite this idea that China is a high growth economy, stocks in China over really almost any lengthy period of time have only averaged about 1 to 2 percent annual, okay. So if you take any like 5-, 10-, 20-year block, they probably only averaged about 1 to 2 percent, okay. So you would truly be better taking that money and just sticking it in … a savings account, probably, at home or some similar type of investment.”

Goldman says his “biggest takeaway is that it’s a crying shame that America, which was the dominant manufacturing power when I was young, is now a secondary manufacturing power. … That translates into a loss of status and loss of political power as well. For example, the Regional Comprehensive Economic Partnership [RCEP], which is now going into effect, is a trade deal, which will basically eliminate 90 percent of tariffs on a third of the world’s economy. China is the center of that. China’s imports from the other 14 Asian countries in the RCEP have risen by nearly threefold in the past five or six years. So the Chinese economy is a source of livelihood for many other countries, even Australia, which is in a very bitter conflict with China over a number of issues, signed on to the RCP because that’s bread and butter. And of course, for many of these Southeast Asian countries, particularly for Southeast Asia, Chinese infrastructure is an important element linking their economies to China. So as long as China maintains its dominant position in world manufacturing, it will have political power. And that position certainly has been enhanced since the pandemic. China’s share of world trade and exports to the United States and to Europe have increased substantially from previous levels. And correspondingly, China has more power. So even though the South Koreans, the Vietnamese, the Philippines, the Australians have serious grievances against China—they object to China’s bullying and aggressive actions, in many respects— nonetheless, they’re still willing to enhance their business and increase their economic ties with China, simply because China has the economic power. And unless the United States revives the power of its industry, then I think a lot of our objections to what China is doing will remain ineffective.”

And as for the future, Prestowitz says there are two main points: “One is what’s happening with COVID—that’s very important. And secondly, because the Communist Party under Xi Jinping has really been tightening its control, not just of the politics, but of the economy, and the production. And it has been increasing the role of state-owned corporations and reducing, really, the role of private entrepreneurs and private industry. So I think it’s important to watch how that evolves in China because on the current pass, I think we have to expect that China’s growth is going to be reduced. And in fact, the party, the Chinese Communist Party itself, is predicting that the growth rate will be lower than it has been in the past. So I think that’s what we need to watch.”

Watch the full report online.

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