Interesting... is everything going wrong for China at once?

 

Three recent blog articles are providing me with a lot of economic food for thought.

First, the blogger at "Come And Make It" provides a Filipino perspective on China's economic activity in the region.  As far as he's concerned, there's a lot to worry about.  He highlights the fire-sale prices being asked for Chinese production machinery, far below the actual production cost of the goods involved.

It is almost like all of China is on a fire-sale or going out of business sale right now.

. . .

Behind China's official reports of steady growth—industrial output up 5.2% in August 2025—lies a harsh reality. Factory production is at a yearly low, retail sales are missing targets, and unemployment is rising, threatening growth goals. This deflationary mess is pushing factories into fire sales of vital equipment, much like historical downturns where people "ate the seed corn"—squandering assets needed for future recovery.

Look at the deals online: Plastic injection molds sell for just above scrap value. Industrial respirators go for a couple of dollars. Blowers fetch fractions of their manufacturing cost. These aren't bargains; they're distress signals from overcapacity and weak demand.

A real-world example: A friend snagged a complete bottling plant in China—PET molders, blow machines, fillers, labelers, conveyors, forklifts, and pallets—for under $200,000 USD, equipment worth over a million new. Similar setups are dumping for $10,000–$50,000 amid factory shutdowns from U.S. tariffs and local slumps.

This mirrors the Weimar Republic's 1923 hyperinflation, where Germany's mark became worthless, forcing people to barter goods and sell tools just to survive. Carpenters and tradespeople hawked their hammers and saws for bread, leaving them unable to work when stability returned. Wheelbarrows of cash bought basics, but liquidating productive assets deepened the despair, squandering generational wealth and delaying recovery.

. . .

China's industrial profits fell 1.5% in July, with producer prices deflating for two years straight. Small factories in places like Guangzhou are crippled. Without real stimulus, these sales could trap China in a cycle: Tools gone today mean no production tomorrow, even when times improve. Global watchers, take note—these echoes of history warn of bigger trouble ahead.

There's more at the link.

In a follow-up article, he ties the fire-sale prices to desperate attempts to get money out of China, bypassing that country's exchange controls by hook or by crook.

Cox explains ... a clever method called trade-based money laundering. Here’s how it works: a Chinese person uses their yuan to buy something in China, like 1,000 tons of plastic pellets or heavy machinery (like construction equipment). Then they “sell” it overseas, but at a big discount—sometimes 20–40% less than what they paid. Why take the loss? Because the buyer pays them in dollars (or another foreign currency) into an overseas bank account. That way, their money is now out of China, looking legit and ready for things like buying a house in L.A. or paying for a kid’s tuition.

This isn’t small stuff. Cox talks about huge shipments of goods—clothes, electronics, even chemicals used for drugs—going to places like Mexico or South America. They might list a $500,000 machine as worth $110,000 on the invoice to avoid tariffs and make the payment seem normal. This trick, called misinvoicing, is hard to catch because it looks like regular trade.

This all clicked when I was talking to my friend recently. He works with industrial equipment and was confused because someone he knows bought the exact same machinery he got from China, but it was sold here in the Philippines for 30% less. He couldn’t figure out how anyone could afford to sell it that cheap. After watching the podcast, it made sense: the seller probably bought the equipment in China, shipped it abroad, and sold it at a loss just to get paid in dollars outside China. It wasn’t about making a profit—it was about moving money.

. . .

Cox [says] this isn’t just individuals acting alone. It’s a partnership between Chinese elites and Mexican cartels like Sinaloa, sometimes with groups like the 14K Triad. Cartels need to clean their drug money, and Chinese people need to move their wealth. They help each other: cartels get cheap laundering, and Chinese clients get their money abroad.

Again, more at the link.

Finally, Larry Lambert at Virtual Mirage notes that "China's airlines are in freefall".  He offers several potential explanations of why at least some Chinese are desperate to get hard currency out of China any way they can.

China’s skies look busy — but what you’re really seeing are flying zombies. China’s three biggest airlines, Air China, China Eastern, and China Southern, just reported combined losses of 4.7 billion yuan in the first six months of 2025. That’s like burning 26 million yuan every single day. Here’s the paradox: Their flights are full. Planes are packed. Yet the more they fly, the faster they go broke.

• Overcapacity Disaster: Wide-body jets meant for Paris and New York are now stuck flying short domestic hops they were never designed for — like using a Ferrari to deliver pizza.
• Vicious Price Wars: State-owned carriers are slashing fares to steal passengers, dragging the whole market into a race to the bottom.
• Tourism Collapse: Foreign visitors avoid China post-COVID because of cashless barriers, visa headaches, and a damaged reputation. Meanwhile, Chinese households are too broke to travel abroad.
• Cargo Decline: Even freight — their last lifeline — is crashing as supply chains shift to Southeast Asia.

In a real free market, these companies would’ve gone bankrupt years ago. Instead, Beijing keeps them alive with massive subsidies — 15 billion yuan in 2024 alone. But subsidies don’t fix broken business models. They create zombies: companies that can’t live, but also won’t die.

The result? Airlines keep hiring new workers, not to serve customers, but to pad employment stats. Senior pilots take substantial pay cuts while fresh hires come in at poverty wages. Everyone is miserable, but on paper, “employment is stable.” It’s fake jobs, funded by real taxpayer money, to make the numbers look good.

This is more than an airline story. It’s a mirror of China’s collapsing economy: Excess capacity—debt-fueled survival. Statistics are manipulated to maintain appearances. Next time you see a Chinese jet soaring overhead, don’t think prosperity. Think desperation — a country pretending to fly while it’s really falling in slow motion.

Speaking of freight, did anyone notice that China's new rail export line to Europe has hit a major geopolitical roadblock?  Poland has responded to growing military and political pressure from Russia and Byelorussia by closing its border with the latter nation - and in the process has shut down the major rail link between China and Europe.  China had planned to greatly increase exports via that route.  Now it's got to find an alternative - and there isn't one that's both fast and cost-effective.

Put all those articles together, and it seems to me that China's caught between an economic rock and a geopolitical hard place.  There are two possibilities in the near future.  Either China will back down from exerting pressure on its neighbors and "make nice" with them once more, or it'll ramp up the pressure, possibly up to and perhaps including an invasion of Taiwan.  The Chinese Communist Party dare not allow its citizens to blame the Party for their economic woes, so it has to find an external enemy to blame.

We live in ever more interesting times...

Peter