Abstract: This study traces the transformation of China over the years. It examines the country’s high debt position which is in all sectors including central government, local governments, corporates and private households which according to the IMF totals 80 percent of GDP. Local debt conditions continue to deteriorate for different reasons – particularly as a consequence of the ongoing real estate crisis but also due to the weakening economic growth potential. The author also highlights the role of BRICS II as an organisation ready for increasing Chinese influence. The study concludes China’s real estate crisis may be much more serious than usually understood by most Western analysts.
President Trump’s trade war has certainly caused a lot of concern in most countries in the world, to a high extent in the U.S. as well. As I have tried to explain in my previous two blogs on this issue, many emerging markets are about to be hit dramatically by Trump’s economic world war (https://blogg.lnu.se/china-research/?p=3650¸ https://blogg.lnu.se/china-research/?p=3642). In this respect, one specific question still seems to be analytically neglected – which foreign companies actually want to invest in the U.S. in the foreseeable future.
Uncertainty vs large market One can read and hear frequently these days that the ongoing trade war has been causing a lot of uncertainty about the future American behavior – or rather the future behavior of President Trump. And as we know from corporate practitioners and academics, uncertainty means a major stumbling block for investors (see for the latter group, for example, Bloom et al https://bfi.uchicago.edu/wp-content/uploads/2022/11/BFI_WP_2022-149.pdf). This leads us to the crucial question of this blog: How will foreign investors behave in the U.S.?
Looking more carefully at all the negative policy and institutional conditions created by President Trump, uncertainty exists at every corner and end. But at the same time President Trump wants foreign companies to move production to the U.S. Aren’t these two developments contradictory? Looking somewhat more profoundly into ongoing institutional conditions, things are indeed on a deteriorating trend. Examples are
¤ President Trump’s unpredictable and changing psychological attitudes and decisions (which could be described as an institutional weakness);
¤ the determination of President Trump and his administration to appoint their supporters for important jobs (even in jurisdiction);
¤ the ongoing cuts of federal money to the research of famous American universities, meaning that many American academic researchers would like to leave the country; by the way, why are (most) Swedish academic institutions reacting so reluctantly on this new opportunity to attract disappointed American researchers;
¤ the recently started American “movement” to make conditions more complicated for incoming foreign visitors and foreign residents in the U.S.
Thus, the question remains – why should foreign companies like to move their production to the U.S. under all these negative institutional and behavioral (psychological) conditions? Even if President Trump recently has announced a 90-day pause on ‘reciprocal’ tariffs for most countries (but except China), uncertainty remains in place – also for foreign corporations with potential plans to invest in the U:S.
However, certain companies will do so all the same – but nobody knows how many of them indeed will take such a step in these uncertain times. Usually or often, poor or worsening institutional conditions turn out to be sufficient for refraining from a new foreign direct investment – but not in the last decades in
China as an outstanding exception. Quite some time ago, I made a survey on this Chinese issue. The result was not very surprising – telling me that the enormous (potential) size of this giant market served as the main incentive for investing there despite the country’s political and institutional shortcomings. Maybe also then still existing good growth prospects (which under current conditions should not be the case in the U.S.). The same main argument of a market’s enormous size will probably be applied by the foreign companies that still want to invest in the U.S. – despite President Trump irrational behavior.
But how frequently will this happen?
Hubert Fromlet Affiliate Professor at the School of Business and Economics, Linnaeus University
China is about to become badly hit by President Trump’s sharply raised tariffs. As an answer to China’s first response, the American president has envisaged a further substantial rise of import tariffs from China, maybe by as much as another 50 percent.
The current situation can really be regarded as a global trade war with China as the main opponent for the United States. This is nothing new. Indeed, I had quite some articles and comments on this issue in the past (see, for example, from 2019 https://blogg.lnu.se/china-research/?p=2796).
Trump’s rude treatment of China may have different reasons. There be a link to what many observers in the West consider as China’s “unfair trading” by different direct and indirect export subsidies. But it may also be Trump’s objective to change China into a more comfortable competitor country, i.e. for the U.S. Or there may be both explanations.
China tries to find an answer
When studying reactions on Trump’s tariffs in Chinese media, quite some comments deal with desirable normalization of business contacts between the U.S. and China (http://en.people.cn/n3/2025/0407/c90000-20298634.html). Certain pragmatism still seems to exist when it comes to China’s commercial relations to the U.S.
But in my view, China will focus mainly on strengthening domestic demand in order to react on American tariffs and to give more steam to the economy – despite the serious debt situation (see also from 2024: https://blogg.lnu.se/china-research/?p=3606). Still, China obviously plays down the size of its enormous domestic debt – and so seem reactions of global financial markets (which is not really understandable, see my analysis from January 2025 https://blogg.lnu.se/china-research/?p=3615).
Finally, I would like to quote professor Jeffrey Sachs – expert on emerging markets – by using his words that Washington should not aspire to a world in which it alone is prosperous, while everyone else remains poor. Instead, it should strive for a world in which prosperity is widely shared, and all nations can reap the benefits of peace and openness .
All these positive aspects assume liberal and/or free trade conditions.
Hubert Fromlet Affiliate Professor at the School of Business and Economics, Linnaeus University
