Western central banks solved their growth problem with financial asset inflation. China's political stability, however, depends on actual economic production, not stock price appreciation. That contradiction has created two simultaneous crises for Beijing: weakening export markets from the West, and unprecedented wealth inequality at home that's hollowing out the legitimacy of the Party and Army. China is beginning to do something about it, and the consequences for the global system could be severe.
- The foundation of Chinese political power is cracking. Deng Xiaoping unified the country around real economic growth. That growth is slowing, exports are weakening, and Beijing can't replicate Western solutions because they don't work for a state built on delivering tangible results.
- Wealth concentration is eroding the Party's moral authority. The gap between hyper-privileged families and ordinary Party members has become unbridgeable. These oligarchs aren't just rich; many rose through political positions and now represent everything the revolutionary coalition was supposed to prevent.
- China is beginning to view the Western monetary system as an existential threat. The renminbi has weakened significantly since early 2014. Currency policy, not tariffs, is becoming the weapon of choice in what Beijing sees as economic warfare.
- The chess pieces are moving in ways most models don't anticipate. Energy independence, technological sovereignty, strategic resource control, realignment with Russia, cyber operations. These aren't random policy choices; they're coordinated responses to perceived encirclement.
- One of the world's most stable financial structures may be approaching collapse. The Hong Kong dollar peg to the US dollar has held for 30 years through sheer political will. If Beijing's pressure intensifies, that fault line could shift in ways that reshape global finance.
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DISCLOSURES
This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.
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