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Bloomberg and Financial Times -- China in trouble

In the last few days, both the FT and Bloomberg published articles which stated that China's CCP is losing control of the economy.  Both articles had tons of supporting data, as one commentator put it, despite the level of self-denial about the scale of the problem facing China, the evidence is now overwhelming, and impossible to hide.  Tens of millions of empty apartments, a massive public debt burden, and appalling workmanship on both private and public projects are there for all to see.

Ten days ago I related my ex-employer client's real estate story that they had lost about 22% of the value of the real estate that had bought between 2010 and 2018, after selling all their domestic real estate holdings. I mentioned that I had no way of verifying this data.   Well, official Chinese government data shows an 8% drop in the last 24 months. A few days ago, the Chinese company that provides market pricing data for private real estate transactions stopped publishing.   This is not the first time the Chinese have stopped collecting/publishing inconvenient data (bond prices, youth unemployment, Covid death etc.). 

Yesterday, a house guest made an interesting commentary about China's military.  He said, the PLA's last two known foreign military actions showed their incompetence; the Sino-Vietnamese war of 1979, where the Chinese army grossly underperformed against Vietnamese forces, and the Chinese's 2016 UN-sponsored African adventure where the Chinese troops ran away.  

In addition, he said, China's one-child policy (1984 and 2015) created a nearly impossible recruitment dilemma; families cannot afford to lose their only future breadwinner to an early death.   Put simply, in China, the average IQ of military personnel is low, and they join because nothing else is available.  To make it even worse, over the past year, there appears to have been an ongoing purge of the PLA.  Several well-known officers have simply vanished.

Bloomberg and the Financial Times paint a bleak economic outlook for China.  If real estate prices are falling, and it accounts for 30% of the country's GDP, that real estate is a major component in regional governments' financial health, and represents somewhere around 80% of China's private wealth, the CCP has a major problem.  At one point the price for already-built, good-quality, empty apartments will be low enough to kill the new construction market.  if the overbuild is really as bad as rumoured, more than a third of China's economy could disappear overnight. 

By the way, their views are that things in China didn't suddenly deteriorate, rather the seeds have been there for a long time, but it's too evident now to hide.  Why should we care? Simply, the impact of an imploding China is impossible to quantify. 


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