In foreign perceptions of the Chinese economy, there are often three common misunderstandings: the belief that China can never be shorted, the hope that the “New Three” can drive additional growth in the Chinese economy, and the fantasy that Beijing’s introduction of a large-scale stimulus program can solve everything at once.
A former member of the Beijing Political Consultative Conference familiar with the Chinese Communist Party system pointed out that these misunderstandings have serious flaws.
On Monday, December 2nd, Desmond Shum, author of “Red Roulette” and a former member of the Beijing Political Consultative Conference who exposed the inner workings of the Chinese Communist Party, posted on the social media platform X revealing these three major misunderstandings.
The notion that China cannot be shorted has been widely circulated. The rapid economic growth in China over the past several decades has led many to believe that those who have bet against China have all failed.
Shum stated that this argument is based on the assumption that because the skeptics have been proven wrong during China’s rise over the past decades, they are still wrong today.
“This is illogical. It assumes that the past guarantees the future, ignoring fundamental changes in the Chinese economy, politics, and the global environment. Shorting China during the era of reform and opening up was a time when success was within reach, demographics were favorable, and integration into the global economy was different from today – many tailwinds have now turned into headwinds,” he wrote.
“The assumption that history progresses in a linear manner is completely ignorant,” he added.
The “New Three” industries proposed by Beijing are often praised as evidence of China’s economic innovation and sustained robust growth. The New Three include electric vehicles, lithium-ion batteries, and solar panels.
While these industries have shown remarkable growth, they still constitute a small part of China’s overall economy, accounting for less than 10% of GDP.
At the same time, the broader economic outlook is not optimistic. “Investment and domestic consumption – two of China’s three growth engines – are contracting.”
“The idea that these emerging industries can offset the structural decline in real estate and its related wealth effects is wishful thinking,” he concluded. “It simply does not add up mathematically.”
This connects to the memory of Beijing’s stimulus plan in 2008-09, when the Chinese economy relied on a massive stimulus program to avoid the impact of the global financial crisis.
But today’s situation is vastly different.
Shum pointed out that China’s economic growth model has been built on continuous investment, cheap labor, and export-led growth, a model that has now reached its limit.
“Internally, China is over-invested, with a high leverage ratio. Under the constraints of Xi Jinping’s return to centralization, it inevitably evokes memories of the Mao Zedong era. On the international front, geopolitical circumstances have changed. Past favorable conditions, such as unrestricted access to Western markets and global supply chains, are no longer a given,” he wrote.
Finally, Shum presented a series of figures: China accounts for about one-third of global manufacturing and 14% of global exports; in comparison, the second-largest manufacturer, the United States, produces 16% of global goods and accounts for 7% of global exports.
The reality is that China’s export-led model is now facing strong global resistance. “As global demand weakens and Western countries actively seek supply chain diversification, China’s manufacturing sector is in trouble. Stimulus measures may provide temporary relief, but cannot address structural challenges,” he cautioned.
He stated that these misunderstandings persist because they lead observers to believe that China’s economic juggernaut will roll on indefinitely, just as it has for the past few decades.
“But reality is more complex and sobering,” Shum wrote. “China’s economic challenges are structural and deeply rooted, and oversimplified narratives are often misleading.”