Part I: Wuxing
The five elements are theoretical relationships that describe a self-completing cycle.
Late Soviet China has five co-morbidities that are proving fatal.
The syndrome is that China’s composites don’t make enough profit to pay for the losses on the components.
Crumbling buildings and unsold garbage-cars are just products of Chinese enterprise, components, and labor.
Like the late USSR, they can’t dismantle losing chains, because the downstream damage is unacceptable.
So they are stuck pouring capital into a system that destroys it and is slowly shrinking.
1. Wood
Dead wood sets the conditions. It accumulates undeniably on the forest floor. If you know where to look, you can see the evidence.
The Yuan Doesn’t Float. Like any asset with restricted float, the book value of the asset class is pumped up by a very small percentage actually traded.
And what is floating has depreciated since 2022.
https://tradingeconomics.com/china/currency
So you think that more RMB circulating and covering payments is going to lead to appreciating RMB? You think that the flow of RMB in China which dwarfs global payments, is going to somehow be propped up by a petro-yuan?
You clearly didn’t compute the ratios of RMB to trade flows.
You think when the whole thing is free floating that it’s going to keep its value?
It doesn’t keep its value now my friend.
Propping up the Yuan worked for a long time, but it has created the conditions for financial disaster.
How it’s like the late USSR: rubles were ‘tokens’ too and were claims on Soviet production. It wasn’t the same as money, because it was not exchangeable.
It was like bowling alley tickets: you can redeem them but that doesn’t mean they are money.
2. Fire
Debt fueled export economy to debt service debt.
Owes $2.33 trillion in foreign debt.
http://english.scio.gov.cn/pressroom/2026-03/30/content_118409306.html
SAFE doesn’t disclose reserve composition, but supposedly has $3.2 trillion in reserves
https://www.ceicdata.com/en/indicator/china/government-debt--of-nominal-gdp
SAFE doesn’t count municipal or bank liabilities.
https://fortune.com/2026/05/11/us-debt-china-total-borrowing-public-private-gdp-ratio-lgfv/
Did you catch that? Total debt, NOT including financial sector is 300% of GDP!
Owes more than it has, so it’s trapped in debt service to keep importing.
It must stoke the fire to keep up debt service.
3. Water
Wouldn’t it be nice if you could call the computers, phones, cars, and machines you fried messing around with, the book value of what you WOULD have sold them at if you’d been successful?
China does this with all its unsold inventory. The car you won’t buy? They park it, book its value, now it’s in the balance sheet, and they can now get a loan on that crap. What will they do with the proceeds? Keep it rolling!
In short, call it book value instead of losses.
Collateral is garbage
Now surely gold doesn’t have this problem. If you show me some gold bars, I should be able to trust that.
Ok, maybe not gold. But surely steel. Tungsten. Copper, right?
https://www.reuters.com/investigates/special-report/china-collateral-fake/
But that’s just Reuters, it’s a one off, right?
https://www.rfa.org/english/commentaries/energy_watch/fraud-07212014104456.html
Wait, then what collateral is China using for its loans?
Liquidity without a container. Water.
4. Earth
Bad Quality : Tofu Dregs, Bay Bridge Steel, and worse as the composites get more complex.
https://en.wikipedia.org/wiki/Tofu-dreg_project
China has been the ‘high tech threat’ to the US for 10 years now. But where is it? They have a bunch of banks and financialized software groups.
https://companiesmarketcap.com/china/largest-companies-in-china-by-market-cap/
Evergrande is the apex composite for Chinese industry: crumbling, can’t make a profit, delivers uninhabitable homes and then threatens to use the PRC to kill you if you complain and demand your money back.
And this crap steel is an old story. They try killing me and then bill me for it too. The Bay Bridge used garbage Chinese steel and Caltrans had to pay twice for it.
https://prosperousamerica.org/cpa-interview-bay-bridge-dangerous-due-to-chinese-steel/
https://www.americanmanufacturing.org/blog/dang-the-chinese-made-bay-bridge-continues-to-fall-apart/
https://www.sacbee.com/news/investigations/bay-bridge/article2600743.html
The real things are not so real. The earth smothers the fire. Fails to contain the water. Rots the wood. Contains bad metal.
5. Metal
Paying twice for Bay Bridge steel is just business as usual in China.
2026 Manufacturing: 34.67 Trillion RMB @ 6.74342 (August 15, 2026) / $1 USD = $5.141 trillion Nominal
https://www.china-briefing.com/news/china-manufacturing-industry-tracker/
Looks pretty strong, right?
2022 Manufacturing: 32.61 trillion RMB / 6.3058 (Feb 21, 2022) = $5.1714 trillion
https://www.stats.gov.cn/english/PressRelease/202302/t20230227_1918979.html
Oops... wait, what’s that? manufacturing declined half a percent?
Well that’s fine!
CHINA STRONG! YOU WEAK!
Except China is spending a third of its GDP on fixed capital.
https://tradingeconomics.com/china/gross-fixed-capital-formation
WHAT THAT MEAN? HULK NO COMPREHEND!
1/3 of GDP a year to prop up 1/4 of the economy, even though that 1/4 has actually shrunk a little bit in the last 4.5 years.
This says everything you need to know about China. 1/4 of its economy is manufacturing and 1/3 of total economic output is spent every year to keep the whole thing running, even though it loses money.
This means that every year, 1/4 of the economy needs 1/3 of the economy to keep it from catastrophically collapsing.
Why?
Because China owes so many dollars in debt that it has to make dollars to keep credit lines open to keep importing the natural resources it needs to keep running the manufacturing lines, to keep selling goodies to markets, to pay for debt service...
The Russian Financial Superpower Will Replace The US As China's Money Partner
After the USSR collapsed, China pillaged Russia and Ukraine. China's military technology caught up to Soviet levels by reverse engineering Soviet designs. There are those who claim that China is now going to finish the job by absorbing Russia economically. This won't happen. Instead, it is Russia that will rebuild its capital plants with Chinese capital…
Smoking it more and enjoying it less, are you China?
Paul Kennedy makes this point in Rise and Fall of the Great Powers,
“It seems difficult to believe the recent report that ‘a simple continuation of recent investment trends in oil, coal and electric power, combined with the targeted investment increase for natural gas, will absorb virtually the entire available increase in capital resources for Soviet Industry over the period 1981-1985,’ simply because the implications elsewhere are too severe. Nevertheless, the overall pattern is clear: merely to keep the economy growing at a modest pace, the energy sector will require an increased share of the GNP.”
-Page 494, Rise and Fall of the Great Powers
Except China appears to have learned the wrong lesson. Lots of electricity, just rapid fixed capital depreciation. The metal has depleted the earth.
6. Late Soviet China
2026 GDP: 69.5 trillion RMB * 2 = 139 trillion RMB GDP = $20.612 trillion PPP
Fixed Investment: 53 trillion RMB
https://tradingeconomics.com/china/gross-fixed-capital-formation
External debt: $2.33 trillion
Internal debt: 509.53 trillion RMB
https://www.stats.gov.cn/english/Statisticaldata/nsdp/201508/t20150819_1232260.html
So let’s see, 139 trillion RMB GDP - 53 trillion Fixed investment to keep it from collapsing, - 5% debt service on $2.33 trillion (so generous, but you are special honorable inscrutible customer China), $116.5b (785b RMB)
Then PRC debt service rates of 2% (interest rates flow from the barrel of a gun) 10.18t RMB = $1.5096t year.
785b + 10.18t + 53t = 63.965 trillion RMB.
46% of China’s GDP is spent on debt service and rebuilding its depreciating industrial base! So practically half of the GDP isn’t even usable! It’s just flow.
And this is the minimal scenario, using ridiculously cheap interest rates and no amortization or retirement of debt.
Now let’s make it worse. How much does China export? 27 trillion RMB.
https://www.china-briefing.com/news/chinas-import-export-2025/
63.965 trillion + 27 trillion = 90.965 trillion rmb.
They make up for some of it with imports. 18.48 trillion RMB
https://english.www.gov.cn/archive/statistics/202601/14/content_WS69673a26c6d00ca5f9a088f1.html
72.485 trillion in total debt service, investment, and exports just to keep China’s economy going.
52.147% of China’s economy is spent running in place.
Put another way, 47.85% of GDP is available for Chinese to consume.
Then taxes: 21.97 trillion RMB in spending, 17.5 trillion in pure tax receipts
https://www.chinadaily.com.cn/a/202501/24/WS67938041a310a2ab06ea9393.html
Keeping ONLY the tax receipts, this means 72.485 trillion + 17.5 trillion in taxes!
Rounding up, it’s 90 trillion RMB before the population consumes anything.
64.748% of GDP goes to fixing broken industrial crap, paying for the loans, and taxes paid to the whole rotten apparatus.
What is population consumption? Yes, a horrifying 35.25% of GDP.
You know what’s even worse? Consumer debt is 83 trillion Yuan, but since it’s the bank’s assets, we don’t deduct it from the GDP. It just shows how HARD the individual Chinese is being squeezed.
Even at 3% debt service this is 2.49 trillion. But they at least get a delivered apartment building unit without everything delivered and they can get arrested for complaining. Great asset!
33.3% of GDP for the consumer. 1.4 billion people, 139 trillion RMB = 99k RMB per capita * .33 = 33k RMB, $4,907 at 6.74342 : $1USD
It’s a round number. Looks like an engineered figure.
II. Horoscope
The money is fake.
The collateral is fake.
The debt is real.
Quality is shoddy.
Everything is falling apart.
Nobody is denying that China has industry. It’s unavoidable that we all use components made in China. But this is the problem. We ALL get a first hand perspective of low Chinese quality.
It doesn’t matter if you’re in Central Europe, Southeast Asia, or the USA, you can see for yourself the low quality of Chinese components.
But it’s often the only crap available. The Russians learned the hard way that ‘cheaper better’ is not better.
https://www.tyrepress.com/2022/03/are-tyre-issues-hampering-russian-military-progress-in-ukraine/
Kamaz had to replace shoddy Chinese axles altogether.
https://www.marklines.com/en/news/340519
https://www.marklines.com/en/news/tag/102/kamaz
Those Chinese tires weren’t up to Russian military spec and so they failed when needed most. Russia had one chance to surprise attack Hostomel and resupply it and never got it back.
At least they were able to replace the tires of the trucks that didn’t get destroyed!
Russia has money and need for more arms. But they buy Chinese electronics components and assemble the composite domestically to spec. 1 trillion rubles domestic and 2 trillion imported.
https://interfax.com/newsroom/top-stories/85237/
We all know there are fine Chinese components. Nobody disputes this. But it is the low average quality that prevents China from climbing the value chain.
This is not a fictional accusation. Remember, one THIRD of the economy is needed to replenish one QUARTER every year.
Chinese military equipment suffers the problem of sourcing its components from China. Composites from Russia and the USA might import Chinese components, but they actually work.
https://www.rand.org/pubs/commentary/2023/06/countries-buy-defective-chinese-military-equipment.html
https://www.dailymirror.lk/international/Chinas-military-export-model-faces-major-setback/107-314723
https://defence-blog.com/chinese-defense-exports-face-scrutiny-over-failures/
https://www.calibredefence.co.uk/chinas-defence-exports-a-troubled-tale/
Compounding component failures lead to non-functional composites. Ever have a Chinese device fail because some tiny little part died? At least you aren’t stuck in the middle of the ocean or 20,000 feet above earth when it happened.
200 components with .1% failure rate over x time (very generous) = 18.13% failure rate over x time.
4 critical systems with 81.865% reliability = 44.9% reliability for composite.
That’s the Chinese military in a nutshell.
That is the Chinese political-economy in a nutshell.
Compounding component failures make for non-competitive composites.
It’s a labor problem. An enterprise (Communism) problem. A component problem.
Scaling harder IS the problem. 1/3 of the economy goes to prop up 1/4 of the economy, because everything collapses otherwise.
Internalize that. It’s not a statistical trick. It’s the endgame of low quality crap trying to impersonate higher value goods.
It makes Chinese missiles a joke. Chinese shipbuilding a joke.
Yes, there will be things that work. I’m sure the nukes will detonate just as well as the Covid kills, but they will both be secured to the same standard.
Exactly 500 years ago, bands of a dozen Japanese pirates would hit and run Ming forces that numbered in the thousands--and won.
In direct engagements, the Ming with their THOUSANDS of handguns would drop them unfired and flee the Japanese.
China has always depended on mass and tech to win. It rarely works. The mass and tech tend to be low quality. Both need to be high quality to work. If you have to pick one or the other, manpower is the better choice.
Qi Jiguang beat the Wako with a weird looking formation that used ridiculous medieval tactics that were already obsolete, but won because of group discipline. Even bad tactics can work if there’s enough discipline to implement.
https://en.wikipedia.org/wiki/Qi_Jiguang
A battle wagon with light artillery was the core of the system, with a combination of swordsmen, musketmen, and bamboo-club carriers used to protect it.
He didn’t beat the Japanese because this system was any good. It was because he cut the ears off his own troops and executed his own second son for disobeying orders.
Do you think the PRC with its known corruption is enforcing rules with this level of discipline?
So mass and tech sounds good, but it’s harder to pull off than you think.
The USA leans on the tech side of that, Russia on the mass side. But BOTH have enough quality to deliver the composite.
China can’t even trust its own ships to circumnavigate Australia without a technical oiler to help them in case of breakdown.
Russia and the US can do this with 3 ships each too: 2 Virginia and 1 Ohio; 2 Yasen, 1 Borei. Those groups each have more firepower than all of the PRC.
China is trying to impress with mid 20th century ship logistics.
The lack of leading Chinese composites is evidence of their fundamental industrial weakness. They can copy whatever they’d like. But it’s not working. You want to say more is better? But it’s NOT WORKING.
There’s too much hype. Too much ‘vibe’ ‘trend’ reading. The data we analyzed is from the nasty PRC themselves. Nobody is slandering them. Nobody is making up anything.
Their industry rots at a rate of over 100% a year. There is no more slack. This is exactly like the end of the USSR. Nobody can reform anything without collapsing the whole edifice.
So you want to say China is the world’s biggest manufacturer, that’s ok. That doesn’t say anything coherent about their power. The USSR was the world’s biggest xyz right before their collapse.