It's Over: China’s ENTIRE Economy Is About To Collapse

Asia is in pain Sri Lanka is bankrupt

Japan is propping up their currency and

while we in America reel from over

stimulating our economy now suffering

from inflation we haven't seen in 40

years with Fed rate hikes crushing the

market that we haven't seen in 30 years

China has its own devastating problems

some say so bad that China might

collapse to prevent this the Chinese

government is stimulating its economy

plowing billions of dollars into

infrastructure projects hoping to hire

enough people and prop up land values by

spending money on infrastructure well so

far the stock market and housing market

are not very happy about the progress of

the Chinese government this here shows

you that by some measures Equity values

that its stock values have dropped all

the way back to 2012 levels and by other

metrics we have seen that Hong Kong

listed stocks are as cheap as they were

in 2009. these are actual nominal prices

here that have fallen substantially now

if we take a look at actual Price to

Book value ratios we could see that many

of these lows in Price to Book values

are lows that we haven't seen since the

bottom of the 2009 or.com bubble

recessions and the housing market isn't

happy either with housing market indices

also plummeting so you've got a lot of

pain in China and there are a lot of

questions about what could this mean for

America how important is this how bad is

it is this going to get and ultimately

why is this happening well the first

thing that you need to do to understand

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building you both so China first a lot

of the issues that China is facing

unfortunately seem self-inflicted

housing makes up one-third of China's

economy and as much as 70 percent of

Chinese citizens individual wealth

housing is extremely critical to China

and the home ownership rate in China is

extremely high as many as 96 percent of

Chinese individuals own their own homes

in rural areas and within cities about

87 percent of Chinese are homeowners

this stands in contrast to America where

the homeownership rate is about 30

percentage points lower at just 65.5

percent in China homeownership isn't

just a source of wealth or economic

might like it is here in America but

it's also a symbol of national pride and

Pride is very very important to the

Chinese they're very smart people but

we've got some problems in the economy

see the Chinese folks are and makeup the

second largest economy in the world and

realistically they'd love to take over

America and probably should they have

three times the population of America

and economy wise America is still twice

the size of China even with a population

that's just a one-third the size so to

China preserving the housing market and

ensuring that individuals wealth remains

high so that China can continue to

develop and grow its GDP at high growth

rates which we've been used to

experiencing for the last 10 to 15 years

in China China needs to make sure that

the housing market remains stable

and so to do this China instituted this

policy called the three red line policy

in August of 2020. this unfortunately

ended up proving either to be a

devastating mistake or ended up proving

that everything was built upon false

hopium and the Chinese housing market

was really just a Ponzi scheme the three

red lines policy had a very simple goal

the goal was to prevent excessive

leverage and housing especially since

many ghost cities were being built under

the mentality of hey if we fund

developers in China well then people

like developers would go build homes and

then other people will build restaurants

and hey if you build it people will come

right the issue first started with the

realization that no people do not

necessarily come to ghost towns China

then ended up having built way too many

homes under the demand and sort of

mandate of the government to just build

more and continue growing at all costs

and they even incentivize developers to

grow as much as possible enabling the

heavy taking on of Leverage that was

done before the three strikes policy

that went into effect in August of 2020.

and so much like the Federal Reserve

made a mistake in acting too late on

inflation China acted too late to slow

the booming housing market China's three

red lines included limiting developers

to no more than 70 percent of assets as

debt no more than one hundred percent of

debt to equity and the requirement that

developers have at least as much cash on

hand as they need in order to satisfy

their debts in the next 12 months

unfortunately this stopped the Chinese

real estate Ponzi cult see a Ponzi

scheme is traditionally when money that

goes into sort of a period of a pyramid

if you will is just use to pay dividends

to Prior investors to make the investors

feel like there's actually a good

business model that's making money well

the reality is the previous investors

are just getting paid out from previous

investors uh or new investors I should

say and in the case of china payments

made by buyers on homes that were not

yet built were used to pay for

construction projects that were older

and still under construction so picture

this you have one Housing Development

that's three months from completion and

buyers are paying for that one already

but the developer starts running out of

money so to fund and the finishing of

development number one they start

another development starts selling

hopium and vision to new buyers and then

take that money and finish project

number one and all of that works fine as

long as the money tap is still nice and

open

but the flow of money stopped thanks to

these new strict lending requirements

the three strikes policy the idea was

hey let's prevent a housing bubble but

China acted too late so what happened

construction stopped not only on the new

projects but the old projects and just

like a classic housing market bubble

fear set into effect and home values

collapsed the real popping of the bubble

though seems to have happened at the

time about one year after the three

strikes policy was implemented when we

saw and first heard of the massive

defaults of one of China's largest

property developers called evergrant it

took roughly one year from the three

strikes of policy or three line policy

three red line policy for these defaults

to occur and those defaults today here

in September of 2022 are continuing

According to some of the latest data

that we have on defaults when we were

just halfway through 22 22 through about

June and July of 2022 default

applications by mostly property

developers exceeded the defaults that we

saw a year ago in 2021 that means in

half of 2022 we had a worse default year

than in all of 2021 despite the fact

that's when evergrand first defaulted

and so literally as recently as

yesterday more developers are continuing

to default and a lot of this is thanks

to the housing market bubble that was

propped up by excessive leverage and an

excessive mandate to grow at all costs

in China

thus we now face the second issue as

property developments freeze and seize

up Chinese home buyers waiting for

properties to be delivered are starting

to boycott their mortgages keep in mind

in China you start paying for properties

even before they're complete via

something known as a pre-sale this is

different in America in America you

generally don't pay for a new

construction home unless either you're

building it or you are buying from a

typical home builder in which case you

wouldn't actually start paying for the

home until you have a certificate of

occupancy and you close that score on

the home unfortunately in China this is

different you start paying for the home

as soon as you tie it up even though the

developer isn't necessarily finished yet

and even though technically some of

these developers should be finished as

in bankrupt not to be confused with

actually finishing their developments in

China it's not that easy to go bankrupt

the bankruptcy process is extremely

murky and cities and other private

developers are now being encouraged to

take partial ownership of defaulting

Developers however many of those with

cash are fearful that they're just

catching a falling knife by getting

involved with defaulting developers Anna

from GitHub via a project literally

called quote we need home

showed that home buyers boycotting

payments are now up to

343 projects as of mid-september 2022

this is up from 318 in July now what's

remarkable about that is that represents

an eight percent increase in the number

of boycotted projects where people just

are not making their payment anymore

because the projects are not being

finished and that is just in two months

an eight percent increase in two months

means we could potentially see a

doubling of boycotted mortgage payments

over the next year because that's

roughly the annualized rate where we are

now keep in mind this is 343 projects

not not homes like each project could

have a thousand homes plus or minus this

is a drastic issue and the boycotts are

now spreading not only are buyers

alleging that properties are not being

delivered anymore now they're amplifying

their complaints leading to even more

people boycotting and not making their

mortgage payments worsening the

situation for developers and potential

investors who want to bail those

developers out

right now they are arguing quote

according to Bloomberg Chinese home

buyers are citing a wider range of

concerns now as justification to boycott

mortgage payments including poor

construction and noise pollution

ratcheting up their demand amid a

spiraling housing crisis

and as a result home confidence and home

buying confidence has collapsed home

values are down 29 year over year in

China and markets are in a deep

recession contending with an exploding

property bubble

all of this is exacerbated by the third

problem covid zero despite Chinese

stimulus trying to prop up the housing

market and land market by starting 52

000 new infrastructure projects if we

start one infrastructure project in

America it seems like a big deal this is

52 000 new infrastructure projects in an

attempt to prop up land values and

increase employment well folks data that

just came out last Friday shows that

property data continues to prove a

decline in investment and construction

and land values despite 52 000 new

infrastructure projects now Hong Kong

just made the decision to scrap

mandatory hotel quarantines finally

ending this coveted zero policy with

airline tickets now already boosting

their prices however Hong Kong is a

semi-autonomous region of China and only

represents one half of one percent of

the Chinese population China's coveted

zero policies are so stringent that a

city near Myanmar has now a acted what

is known as a steel Great Wall it's a

collection of sheet metal Barracks razor

wire and fences to ensure nobody gets

into China without following the covet

zero protocols so if you think covet

zero is over it ain't China is also

faced with a currency risk the more

China stimulates the less valuable their

currency becomes against the dollar now

a weaker Chinese currency might seem

like it would encourage a greater

purchasing of Chinese products but

remember China is trying to become more

self-sufficient just consider the chip

or battery industry for example they're

trying to invest more in China and

therefore they need to import more

products like electrical Machinery from

the United States and other goods and

services like Consulting exports exports

that is and while they will likely

continue to export more than they import

they don't want a very weak Chinese

currency they want one right around or

Yuan that's somewhere around 6.92 not

weaker than that not stronger than that

that's the perfect balance for them

however the more they stimulate the more

that Yuan goes to seven bucks goes to

705 goes to 710 and the more the

stimulus could actually end up hurting

their long-term visions and so this is

where unlike in America where if we just

want to stimulate a lot and whatever

happens to the dollar happens China is a

little bit stuck between a rock and a

hard place on top of that next month you

have a Communist Party Congress where Xi

Jinping might receive a renewed

five-year term some are saying that

potentially during this a meeting or

congress we might actually see an

announcement that covet policies are

being relaxed and maybe we'll actually

see some more stimulus though many say

this is just hopium that covet zero is

probably here to stay for a while China

is not going to be able to stimulate as

much as they need to and their stimulus

is really going to fall on deaf ears

because the housing market is collapsing

and anybody who thinks that A Renewed

five-year term for or Zee Jinping is

likely to bring any kind of quick change

is probably not realizing that China

while it is unlikely to collapse is

likely going to go through a very

lasting and deep recession if not a

great Chinese depression now when it

comes to America some say you know what

that could be a blessing because the

less demand China has for Global goods

and services Allah oil for example the

lower prices go and the lower prices go

of goods and services around the global

economy including oil the more deflation

or disinflation we experience so if

China goes through a Great Depression

ironically it could actually be exactly

what America needs an anchor in the

global economy to slow down and bring

down the demand for goods and services

which where there's an overlap will

drive prices down and hopefully bring

disinflation and deflation to the United

States

not that in the United States we want to

cheer at the failures of China and China

in my opinion is unlikely to collapse

China will be going through a very

difficult period and my heart goes out

to the individual Chinese especially the

Chinese investors who were suffering at

a time like this because I think the

Chinese are incredibly smart people they

just had a government that wanted to

expand too quickly but China will be

back