The widely reported collapse of China's housing market is not an organic crisis but a state-directed reallocation of capital. By instructing banks to prioritize industrial capacity over mortgages, the government is deliberately shifting funds away from a speculative real estate bubble and into strategic sectors like microchips to counter US sanctions and build self-sufficiency.
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From China's perspective, producing more than it needs and exporting at cutthroat prices is a strategic tool, not an economic problem. This form of industrial warfare is designed to weaken other nations' manufacturing bases, prioritizing geopolitical goals over profit.
To counter the economic threat from China's state-directed capitalism, the U.S. is ironically being forced to adopt similar strategies. This involves greater government intervention in capital allocation and industrial policy, representing a convergence of economic models rather than a clear victory for free-market capitalism.
Instead of crippling China, aggressive US sanctions and tech restrictions are having the opposite effect. They have forced China to accelerate its own domestic R&D and manufacturing for advanced technologies like microchips. This is creating a more powerful and self-sufficient competitor that will not be reliant on the West.
Attempts to undermine Chinese chip maker Huawei by allowing NVIDIA to sell chips to China are flawed. The Chinese government operates outside typical market dynamics and will ensure unlimited demand for Huawei's products, making NVIDIA a temporary gap-filler that inadvertently turbocharges China's AI industry.
China's campaign against "evolution" (excessive competition) is not a broad economic stimulus. It specifically benefits sectors like EV batteries, steel, and cement where state control or rapid market consolidation can restore pricing power and profitability.
China is explicitly subsidizing domestic semiconductor firms through its National Integrated Circuit Industry Investment Fund. This state-backed capital is the key driver behind its policy to achieve technological independence and replace foreign companies like NVIDIA.
Due to financial repression and a lack of viable investment alternatives, Chinese households rationally pour savings into property, often leaving them vacant. This creates an affordability crisis for those needing a home, alongside a massive inventory of empty apartments held as investments.
The dramatic drop in China's Fixed Asset Investment isn't a sign of economic failure. Instead, it reflects a deliberate government-led "anti-involution" campaign to strip out industrial overcapacity. This painful but planned adjustment aims to create a more streamlined, profitable economy, fundamentally reordering its growth model away from sheer volume.
The immense profitability of real estate in China created a gravitational pull for capital and talent. Productive companies diverted resources to start real estate side-businesses, and entrepreneurs abandoned other sectors, resulting in a net drag on national productivity and innovation.
U.S. export controls on advanced semiconductors, intended to slow China, have instead galvanized its domestic industry. The restrictions accelerated China's existing push for self-sufficiency, forcing local companies to innovate with less advanced chips and develop their own GPU and manufacturing capabilities, diminishing the policy's long-term effectiveness.
