中國迫在眉睫的危機（China’s Looming Crises | CNBC Marathon）

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Chinese population has declined for the first
time in decades.
It is a big deal because it marks the end of this
era of rapid growth and of cheap labor.
China's ghost cities, or residential buildings
without tenants or construction that never
finished, have become visual metaphors for the
ongoing crisis.
Demand disappeared.
There was lack of trust among buyers, and that's
ultimately what led to a decline in demand and
therefore the downward adjustment of prices as
well.
Since the end of 2022, China's urban youth
unemployment rate has risen to 21%.
This is the age category from people 16 to 24,
about 96 million people, the statistics bureau
said. 6 million of those are still looking for
jobs.
The second largest economy in the world is in
trouble. China is facing a growing list of problems
real estate, semiconductor bans and
labor market gyrations.
The world's second most populous country also has
a major youth unemployment problem.
Really quite disconcerting was the youth unemployment
figure. It hit a fresh record of 20.8% for May.
That's up from 20.4% the prior month.
This is the age category from people 16 to 24,
about 96 million people, the statistics bureau
said. 6 million of those are still looking for
jobs.
Since the end of 2022, China's urban youth
unemployment rate has risen to 21%.
The issue was getting so much attention that China
decided to stop publishing the data
altogether. China's youth employment rate now ranks
with several G7 countries that have notorious
problems with getting younger workers into the
labor market, like Spain and Italy.
India, the world's most populated country, has
also been dealing with a youth employment problem.
But China has prided itself on putting its
hundreds of millions of younger, well-educated
citizens to work, and the most recent data set a
record for the highest youth unemployment rate
ever in China.
Experts point to several reasons for the slow pace
of hiring for recent graduates, and China's
youth.
At a labor market transformation could have
impacted the recent youth unemployment rate in
China, and also the way the Chinese government has
been regulating some of the sectors that I
studied, including the high tech sector, could
have really serious impacts on the employment
situation today.
My understanding is there just aren't the same level
of jobs that require a college degree.
So there's this imbalance in terms of supply and
demand, and then that that's made even worse
because of the Covid and the entire economic
slowdown.
So what's happening in China?
Why are younger workers not working?
Because of the overall economic slowdown,
businesses don't want to hire as many people,
especially not young people, because you have
to train them and you don't know if they'll stay
around. You don't even know if your business is
going to be around.
China's economy, along with other parts of the
world, is struggling to find growth.
A lot of Chinese wealth is tied to real estate,
and as the housing sector grew and grew in the late
20th and early 21st centuries, homeowners saw
a big increase in their net worth.
That all reversed during China's zero Covid policy,
investment in real estate began to plummet from 8.3%
year over year growth in 2018 to a sharp decline of
8.4% in 2022.
Policies from Beijing forced property developers
like Evergrande to default on their debts and
eventually file for bankruptcy. Shares of
Guangdong based Evergrande began trading
again on August 28th after a 17 month halt.
The stock plummeted 78% in the day.
Consumer confidence has been declining since the
beginning of the year because people realize
that the post-Covid recovery isn't as strong
as many of them had hoped for.
One area of particular weakness is the service
sector. Investment actually completed by the
tertiary industry, what China's National Bureau of
Statistics calls the service industry, has
tapered off in the last six months compared to a
year ago. Even imports and exports to and from
the country are down in most sectors, including a
23% drop in exports to the United States and a
21% drop in exports to the European Union in July
compared to last year, all while imports of crude
oil dropped 21% in July from a year ago.
Just a year to date, the country's imports have
fallen 7.6% from last year.
Some of the problems in China may be deflationary,
but, you know, if China is experiencing deflation,
that doesn't change the fact that consumers aren't
really spending, consumers aren't spending
in China. And they're not spending abroad either.
As a result of pressures on the economy and limited
spending, the Chinese government decided to cut
interest rates in a very different move than the
rest of the developed world.
For Chinese government, it really wants to contain
any of the market volatility, especially
during the economic downturn.
And from the beginning of this year, there were a
lot of speculations in the market over any big
change in the macroeconomic data.
So it's in a way becoming the self-fulfilling
prophecy because the government is so worried
that there might be too much attention for certain
type of data, then they do not wish to disclose
too much of it.
And as a result, there are more speculation and
more fear in the market.
A lot of the young people right now, their parents
lived through China's big economic boom in the last
couple of decades. So a lot of the parents have
made a lot of money.
And, you know, the kids, even if they're not fully
employed or employed at all, it doesn't mean that
they're financially affected.
They might still be living very comfortable
lives just because of how affluent their families
have become.
One study, conducted by a Yale University researcher
determined just how much household wealth increased
between 2010 and 2012, in China.
The data showed between those two years, housing
assets grew 51% in value.
And then what happens in China was in the last 10,
15 years, the housing market skyrocketed.
And then the value of the, say, second, first
tier cities property, especially first tier
city. My experience research mostly in
Shanghai. It went sixfold.
Tenfold. That's how people are sitting on this
wealth. And these are those young people's
parents generation.
And in the U.S.
we talk about, oh, the baby boomers.
They got everything.
China's overall urban unemployment rate has
remained relatively steady all year, hovering
around 5.2%.
The 25 to 59 year old population has seen steady
employment as well, with that number hovering
around 4% since March.
That's leading some to call younger demographic
groups, quote, professional children,
even.
If they're not fully employed or employed at
all. It doesn't mean that they're financially
affected. They might still be living very
comfortable lives just because of how affluent
their families have become. And so that also
contributes to hey, maybe I can just take some time
off and lie flat.
I don't think young people are buying it because they
were not lazy.
Like I said, they study really hard, they compete
really hard, and then they are competing for
jobs like hundreds of people applying for one
position.
I recently heard another way to characterize the
situation in doing sit ups.
It's sort of expressing this idea that whatever
sector you try to make your way in, whether it's
coffee or real estate or tourism, it's extremely
competitive because everyone's trying to get
their slice of the same pie.
So if you're doing sit ups, you're taking breaks
between lying flat and also participating in this
intense rat race.
One way this sitting up phenomenon has played out
is via the country's national civil service
exam in March 2023, more than 7.7 million people
took the civil service exam in China, the first
step toward getting a government job.
Thing is, there were only 200,000 open civil service
positions.
Certainly the internet platform companies like
Alibaba, Tencent, they also saw massive growth in
the last two decades that had driven significant
demand for young people as well, and with
different regulations in the last couple of years,
we've seen that these industries have been
clamped down on by by the government or at least
restricted in a way that, you know, they're not
hiring necessarily at the pace they used to, if not
laying off jobs.
China's policy towards some of its largest
technology companies took a significant shift during
Covid 19, when Xi Jinping began his third terms in
office in 2020, regulators suspended what
would have been at the time the world's largest
IPO on record from Alibaba's Ant Group on
Shanghai and Hong Kong exchanges, due to,
"significant issues such as the changes in the
financial technology regulatory environment."
So before 2015 is the continuing growth of wage
across different sectors, including labor intensive
manufacturing like labor intensive or services.
But the situation began to change in the mid
2010s. So basically the job moved from the
manufacturing sector to the low skilled service
sector. But the problem is that the low skill
service sector don't really solve the problem
because they generated very bad jobs.
Chinese President Xi Jinping has urged the
youth to eat bitterness, a more traditional Chinese
phrase which means to persevere through hardship
without complaint or even to suffer.
China's policy focus has been more and more on the
long term, and that's why we have seen a lot of
stress on economic security.
And that means way more investment into the kind
of technology that will be meaningful in the long
term, but not so much for the short term.
Artificial intelligence will be one of such
example. Just by putting more money into AI, it has
a potential to replace even more workers,
especially young workers, in the near future.
So it's not necessarily good for job creation, but
it's very important for China's long term growth.
On the other hand, though, it actually does look like
the economic malaise that China is experiencing may
be contributing to its apparently increasing
willingness to come to the table and engage in
diplomatic exchanges with the United States.
You look at their import numbers, you look at their
export numbers all again, read negative.
And we invest in other parts of Asia, Australia,
South Korea, Japan.
But at this point, I think it's prudent for
folks like us and your viewers to start to
rethink how they're going to deploy capital in
China.
Many young people used to graduate and maybe go into
real estate education, after school tutoring,
internet technology companies, coding jobs,
even government positions. And those are
really not necessarily where the future of China
is going to be heavily focused on.
The Chinese youth, for they tend to pursue
graduate degrees as a strategy to deal with
labor market difficulty.
So the problem is that they are becoming more and
more educated.
But the problem is that you just delaying
postponing the problems, but you are not solving
the problem. You are getting more and more
degree that don't really give you any return.
China has always been known for its massive
population size.
It's home to 1.41 billion people.
That means nearly one out of every five human beings
on Earth lives in China.
But now that number is shrinking.
For the first time since 1961.
China's population has declined for the first
time in more than 60 years.
According to numbers released Tuesday by
China's National Bureau of Statistics, the
population in 2022 was just over 1.4 billion, a
drop of 850,000 from a year prior.
So the recent news that Chinese population has
declined for the first time in decades, in many
ways is a big deal because it marks the end
of this era of rapid growth and of cheap labor.
If the labor costs in China are no longer
cheaper than other countries, China will lose
its comparative advantage in manufacturing goods for
the rest of the world.
Consequently, the prices of your iPhones, the
prices of your cars, and many of these things are
going to rise. And so the global consumer is going
to feel what's happening.
So what's happening in the bedrooms in China is
actually affecting what's happening in the rest of
the world.
China has been implemented this one child
policy for 35 years, from 1980 to 2015.
The reason for this is back in 1980, the Chinese
government observed or predicted that in the
future, China's population growth rate
will be so high, and then there will be the famine
problem. Then the agricultural production
will not meet the people's wants and needs.
Many couples therefore chose to only have a son
when restricted to just a one child household.
So consequently, after 30 something years, what you
do have is a huge situation of missing women
and surplus bachelors.
Something like 30 million surplus men who cannot
find brides. That obviously has a lot of
consequences for how do you make future babies for
China, right? No women.
That's a big problem. It costs the population to
become too male, too old, and too few.
Reasons why the younger generation decided not to
respond to the policy changes.
Number one is the sheer cost of living.
Just an ordinary city, if you buy a property, you're
looking at 30 years of commitment to pay off your
mortgage. So this is a huge burden.
In rural China, things are slightly different
because housing is cheap.
However, education is a problem, and if you want
to send your kids to secondary schools or
universities, you must leave your village.
You can imagine then boarding costs all the
fees. This all build up.
Although the government relaxed this one child
policy to even three child policy.
But still we did not observe much effect out of
it. One reason is Covid recently, especially for
the year 2022, because 2022 was China still
implemented, this very stringent zero Covid
policy. So most of the people live in a very,
extremely inconvenient life, and many people got
laid off because of this long time no show at work.
That's why the birth rate in the year 2022 is very
low. So from the domestic perspective, the real
estate market, which was booming for the last 30
years, your first generation of homeowners
coming in is now stalled, partly as a result of
Covid, but also partly as a result of a housing
crisis, and also partly because of the population
growth slowing down.
That's a long term economic outlook that it's
not helpful.
Aging is catching up in China.
It actually affects the quality of population and
they are not as productive as young
generation.
The aging population can make the government spend
a lot of money on the welfare expenditure.
They pay more money for the Social Security,
Medicaid, Medicare and etc.
and also population shrinks.
That means tax payers shrinks.
So lower amount of tax payers indicate a lower
tax revenue and then higher government
expenditure. So the government budget deficit
will be the result.
Especially the last 25 years, China has embedded
itself into global supply chains.
And so we felt that very acutely out of the Covid
pandemic, particularly as vaccines were rolled out
and consumer spending boomed, there were
bottlenecks at ports, there were semiconductor
chip shortages as inputs to automobiles.
And so the integrated success of globalization
has now become a threat to the resilience of
global supply chains.
Now, China.
Had for a long time been a manufacturing-based
economy. So the source of cheap labor was very
helpful to grow. And that's why very many of
the world's factories relocated there.
That's why it became the world's manufacturing
floor. That's why your iPhones and your your cars
and your solar panels are all made in China.
And that's why we've all paid relatively cheaper
costs for it.
Unlimited supply of cheap labor from rural China is
the engine of China's exports.
Now, if you switch that off, China's cheap
labor-based manufacturers will soon kind of decline.
And this will cause some kind of famine in goods.
Certain things you can get very cheaply, not
anymore. Cheap goods made in China.
That party's over.
India is poised to dominate the global
economy for the rest of this century.
Why? Because its population will overtake
China this year, in 2023, and in the next few years,
its working age population will become the
largest in the world.
Now, India still has demographics so that it
will continue to grow and add population in the
subsequent decades.
Indians are young.
The average age is under 30.
It's really a vibrant, young, educated workforce.
I won't be surprised in the next decade.
India will be the workshop of the world.
Population is only going to be one dimension of
this. We have to think about infrastructure,
about gender roles, gender equality, about the
nature of the economy.
And in that sense, of course, there are still
fundamental differences between China and India.
And I think in many ways, India still has a lot of
ground to gain.
Just because you have plenty of young workers
doesn't mean you have the roads, or the factories,
or the financing or the logistics to take
advantage of all those things and really make it
come together. So yeah, that's not that
expectation at all.
This population decline in this process of aging is
almost irreversible.
We can try to slow it down a little bit through
increasing fertility rates, but that's not
really the solution to anything, because of
course, babies don't work, babies don't pay
tax. And so we need to do is tackle some of the
challenges of today.
And that will require things like reforming the
pension system, making sure that their health and
social welfare systems are more adequate, but
then also ensuring that China can do more with a
smaller population involve increasing
productivity, maybe reforming the education
system, and so on.
Suppose if the labor supply reaches a
critically low point, the Chinese government might
consider importing cheaper labors from other
countries to lower the cost of production and to
maintain its comparative advantage of its domestic
products. And this will bring about even more
benefits to other countries with cheaper
labor.
Foreign companies, foreign governments are aware that
things are going in one direction in China at the
moment.
A lot of companies are going to rethink their
whole business model, whether they would place
any manufacturing or resourcing outside of
China, whether they would be looking at other
sources of consumption growth.
The damage has been done.
Nothing you can do about it.
You just have to to minimize the damage in the
future.
China's real estate industry is collapsing in
slow motion. These ghost cities or residential
buildings without tenants or construction that never
finished, have become visual metaphors for the
ongoing crisis.
That kind of really undermined the confidence
among home buyers, because they were now
worried that developers might not deliver the
apartment that they had put a down payment on for.
And so you then got essentially a confidence
crisis among consumers who weren't able to trust
developers to deliver the department they had paid
for, at least in part.
And so demand disappeared.
There was lack of trust among buyers.
And that's ultimately what led to a decline in
demand and therefore the downward adjustment of
prices as well.
One of the issues for the property sector has been
its rapid expansion.
And in China's financial world, there haven't been
as many regulatory constraints as you might
have seen in other parts of the world that are more
developed.
The total value of commercial real estate
sales from things like offices and shopping
centers skyrocketed in February 2021, with the
month over month increase of 133%.
That same value on those sales has now fallen
negative to -1.5% from July to August of this
year.
Part of the problem this summer, in late July and
early August, was that the pace of the sales
decline was accelerating.
While you had Country Garden run into these
default worries.
From Evergrande's default and eventual bankruptcy
filing to Country Garden's debt
restructuring, ripple effects are making waves
throughout the entire economy and the Chinese
stock market. The Hang Seng Mainland Properties
Index illustrates this tough time rather clearly,
a steep decline since the sector's peak in January
2020. This all comes as China's overall economy
struggles with its post-Covid recovery.
Wall Street analysts are now cutting their
forecasts for China.
Barclays, for example, cut its estimate for
China's 2023 GDP from an astronomical 9% to 4.5%.
Official Chinese statistics state the real
estate sector only accounts for 6% to 7% of
the country's overall GDP, but estimates from
economists like Ken Rogoff suggest all real
estate inputs and supply chains make up a whopping
30% of China's overall GDP.
So what's going on with China's housing sector,
and does it mean trouble for the U.S.
and the global economy?
Back in 2014, the country's sizzling housing
market began to cool, with fewer sales, falling
prices and slowing development.
Compared with the situation back in 2014.
The situation is quite different because back in
2014, we don't have this kind of issues of
developers. At the time we just had a slowdown,
not a huge wave of default of private
developers, and we don't have a huge group of
austerity households which already have a high
leverage, lower-income expectation.
This time around, developers began to look
to offshore international debt markets and local
governments to finance new projects, anticipating
continued growth.
They really saw huge growth in the last two
decades, and part of that was because they could buy
land from local governments and then sell
those properties that they built on the land to
people in China.
And there was a lot of financing involved with
that.
As these companies began to grow and grow with no
constriction in sight, that's when several
auditors parted ways with the big real estate
companies in China, sparking fears of
underlying concerns.
It's a result of very deliberate policy by the
government to prick the property bubble that was
forming over the last decade or so, so the
government stepped in and essentially curbed
financing to developers, tightened the screw and
household borrowing, for example, in order to rein
in property prices.
But in some sense, they got a bit more than they
bargained for, because now we are here about a
year and a half later and the property market is
actually quite depressed.
Evergrande is one of the notable property
developers that defaulted on its offshore debt
payments in late 2021, meaning it failed to repay
bills and even miss the grace period window to
repay. Country Garden was another of the
privately-owned Chinese property developers to
catch investors' attention after signaling
pressure on their ability to pay down debt.
On October 18th, the company missed a $15
million payment. The company now rests with $11
billion in offshore bonds, and even mentioned
it expects to be unable to meet all of its off
shore debt obligations.
So one strategy the government adopted in
order to rein in the frothy housing market was
really to curb the financing access of
developers. Developers would borrow money in the
market, would then build apartments and sell these
to consumers.
And so by essentially cutting off developers
from funding or at least restricting their access
to funding, developers suddenly realized they
don't have enough money to actually complete the
projects they're working on.
In total, 26 property developers encountered
distress events in 2022, according to S&P Global
Ratings. S&P Global Ratings counts distressed
events as those where the developer reportedly
restructured or outright failed to pay any of its
offshore or domestic obligations.
However, these defaults subsided in 2023 as
several of these companies were able to
push back their maturities to late 2024.
China's shrinking real estate sector over the
coming years really have a huge impact on heavy
industry, on the commodity markets
globally, because there's going to be less steel
demand, there's going to be less cement being used,
less glass, for example, that impacts within China,
heavy industrial areas that really produce these
raw materials. And so that's not something that
will grow very fast.
And therefore, China in some sense has its own
rust belt in the northeast, a term we're
familiar with from the U.S.S, for example, where
as the economy shifted away to different sectors,
you left behind with kind of empty factories and
kind of declining employment, and China has
the equivalent.
All of this is spilling over into the global
economy. The International Monetary
Fund just cut its global growth forecast for 2024,
and called out China's real estate crisis as a
big reason why, in addition to citing rising
inflation and interest rates, the IMF described
China's real estate crisis as a major problem
facing policymakers going into 2024.
The IMF said diminished consumer confidence and
investment in China posed a "significant risk for
the global economy.
Since real estate was one of the biggest parts of
China's economy, real estate developers were
growing significantly.
I mean, it made a lot of investment sense at one
point to buy these bonds, but that growth and that
reliance on debt obviously proves
unsustainable. I mean, it's something that people
have warned about on China's economy for
decades. And at some point, the government has
started to think about how they could reduce the
level of debt in their system.
This led to the central government's decision to
institute a three red lines rule for property
developers. This rule puts a cap on the ratios
of debt to cash, debt to assets, and debt to equity
that these companies can hold.
From anecdotes that I've heard, this policy was
implemented pretty stringently in that
everyone was so scared of giving any financing to
the real estate developers that they were
almost, it sounded like, cut off.
This three red lines policy was so steep it
doubled China's default rate to 4.4% in 2021.
Then the following year, it doubled again to 8.2%,
according to S&P Global Ratings.
I think China's government would try to let those
private developers to negotiate with creditors
and to get those things done, to try to stabilize
it, instead of trying to leverage on central
government to bail them out.
Fast forward to just a couple months ago, the
central bank and government officials moved
to boost home sales by lowering the minimum down
payment for first-time home buyers to 20%, and
30% for second-time purchasers.
Officials also began encouraging lenders to
lower rates on existing mortgages, all in an
effort to boost property sales.
All these are really aimed at juicing home sales,
raising demand for apartments.
And on both of these strategies, the government
has only been partially successful so far.
We're still early days, but we're not really yet
seeing a V-shaped recovery in housing
demand. It's really been a bit of a slog in recent
months to get consumer confidence back into the
market and stabilize home demand.
But there's a key difference between private
sector developers and state-owned developers.
The private sector developers really funded
themselves a little bit more out of the
international market.
That is, they went to global investors and
issued bonds to fund their expansion, whereas
the state-led developers really funded themselves
more domestically.
This exact phenomenon played out in 2021 and
2022, as the privately owned enterprises or
developers default amount surged 35.4 billion, while
their state owned counterparts fell to 190
million. In a very rapid difference.
It's not to say that state-led developers are
entirely off the hook.
They too have faced, of course, increasing
pressures due to declining demand.
And they, too, are facing it, facing a more
difficult time to raise funding, although not
quite on the par of what private sector developers
experience over the past 18 months or so.
The amount in offshore defaults for China's
property sector soared to a record rate in the last
ten years, from 4 billion in defaults in 2015 to $54
billion in 2022.
And the rate at which companies defaulted
tripled, according to the S&P Global Ratings.
You see that bifurcation in how the property
developers are doing.
Like, for example, again, Evergrande, they were more
exposed to the lower tier cities and not as much to
the higher tier cities.
It's pretty similar to, let's say, the United
States. New York's property market will
almost always hold its value.
It might go down, but after the pandemic, it
comes back and more expensive than ever.
It's just because more people are always going to
the large cities for the job opportunities, and
also the education and health care services that
they can get in the large cities.
Cities and localities in China differ in their
policy responses to the struggling property
sector. For example, China's central
authorities announced that city-level
governments could decide on their own the
eligibility criteria for first-time home buyers.
These kind of policies differ based on where you
are in China.
As of now, only Shanghai is still maintaining its
momentum, while for other tier three city, or tier
two or even tier one city already slowed the
momentum. So that means that the effectiveness of
this policy is quite different.
And maybe it's just it's just not going to be that
kind of boom that we, booming economy, booming
growth that we've seen in the last couple decades.
Also, people have expected you know, China's
growth overall is going to slow.
But does that mean it's going to collapse and fall
into a deep recession?
I think there's a lot of space in between that
scenario and what's happening right now.
I think no one right now would expect, like the
property market will immediately stabilize.
I think the market has a better understanding of
that the property market may not stabilize that
soon. I think the key question back to when it
will start to stabilize or when it will bottom
out. I think that's something that people are
debating. As I mentioned, Like I may be a little bit
bearish. Like I don't think the situation will
stabilize in 2024 due to supply issues.
It's important to recognize that there is a
longer-term challenge here, and that is we
essentially have too large a construction
sector in China.
We have two large a real estate sector because
underlying demand for apartments is declining.
We have slowing slowing urbanization, declining
demographics, that its population is aging.
We've already rebuilt most of the Chinese
housing stock to modern standards of the last two
decades. And so China going forward doesn't need
the amount of construction activity, the
size of these developers, the overall real estate
activity, because there's just structurally
declining demand.
And it's just that there's some times we just don't
have enough information, which is the scary part in
of itself. And that's been China's problem, this
lack of transparency.
But with the data we have, some people are
pointing to China's past track record on economic
policy. It's just more I think what we don't know.
But there are growing uncertainties.