Why China's Economy is Falling Apart

for a long time the story of china's rise was flawless an incredible transformation of the whole country a new economic model challenging the western liberal capitalism hundreds of millions of people lifted out of poverty and china becoming the new global superpower and on its way to replace the united states as the world's biggest economy but lately things have seemed kind of different [Applause] china's property crisis confidence in the financial sector has plunged a massive protest over frozen bank deposits turned violent in zhengzhou my base case for china i think that the chinese economy is really going to go through a crash pretty soon like along about third quarter this year the real estate market is on the verge of collapse people are refusing to pay mortgages and china is about to enter a major debt crisis young people are struggling to find jobs deal with the rising costs of living and succeed in the incredibly competitive society and many of those who have jobs are exhausted from the toxic work culture and starting to give up on even the idea of starting a family owning a home or even living a normal life the story of china just seems rather different than it did just a few years ago but how did this happen where did all those problems come from and what will all this lead to this is the dark side of china's rise cracks in the system [Music] but this story starts much earlier in 1976 right after the death of chairman mao because it was at that point when china was at the rock bottom and in the very beginning of its rise to the top by then china was one of the poorest countries in asia and among the bottom 10 percent of the poorest countries in the world after the previous 30 years of insane reforms like the great leap forward and chaos and violence during the cultural revolution the economy was a wreck there were basically no private businesses sectors like agriculture industry and trade were owned and controlled by the state and the economy was run by five-year plans china's trade with the rest of the world was minimal since there wasn't much it could offer and there were no foreign investments in the country both because they were not allowed and because no one wanted to invest and that's when deng xiaoping was put in charge and started turning things around the new leader of the people's republic opened china up to the world invited foreign investments and allowed private businesses and capitalism first at a small scale and with limitations but then bigger and bigger once china opened up to the world it offered a unique combination of an almost infinite and extremely cheap labor force lack of regulation relatively stable and safe business environment and tax breaks and subsidies for foreign investments this attracted foreign companies that started to come one after another moving their production to china and bringing so much investments that they eventually turned china into a global factory for pretty much anything the world needed and the chinese economy grew faster than anyone could imagine so much that the four decades of the chinese growth from the 1970s are described as easily the most impressive economic miracle of any economy in history and the light speed economic growth hugely affected the lives of people they got richer and healthier as 850 million people were lifted out of poverty and life expectancy increased by 20 years mega cities appeared all over china and hundreds of millions of people moved from the countryside to urban areas basically the story of the rise of china has been the success story of the 21st century except there is another side to this story as well the reality is that the world's greatest economic miracle came at a pretty high cost and this cost is already starting to take its toll on both the people and the economy itself but to explain we have to start with the one thing that made the entire chinese miracle possible in the first place china's urbanization the largest migration in human history as china opened up most people lived in rural areas which meant that they were mostly working in the agriculture sector but now the priority was to develop manufacturing and services instead which were located in large cities and in order for these sectors to be developed they needed people a lot of people and so a gigantic urbanization drive began as between 1980 and 2020 hundreds of millions of people moved from rural areas to cities and while this influx of cheap labor kept china's manufacturing costs low and boosted china's economic growth by doing so it also created a pressure on these internal migrants because of something called the huko system it is a system that was meant to control internal migration within china and it basically divides people between urban and rural residents even if you move from the country to a city for work it's still very difficult to change your category and obtain an official urban residency in a city and so a lot of the people that moved to the cities officially remain as residents in their rural areas but without the local residency in the city where you work you don't have access to basic public services there like healthcare or access to schools for your children and so getting a residency and escaping the huco system became a top priority for many of the hundreds of millions of people that moved to the cities and one of the ways that could help them get a residency was owning a property the fact that owning a property was basically a prerequisite for living a normal life created an enormous demand for real estate which has been driving the real estate prices higher and higher in the recent decades but the average wages and household income in china did not grow nearly as fast making it extremely difficult for average people to buy their own home the fact that owning a property was both extremely difficult and extremely important created an enormous pressure on people to work as hard as humanly possible in order to get ahead and get a better job higher salary and one day a mortgage an apartment and finally a chance to live a normal life with access to basic public services and that in turn affected even the people already born in the cities since they had to compete with a never-ending stream of people coming in from the country who were pushing the bar of how hard everyone worked this system combined with the confucian tradition of valuing hard work turned china officially a communist country into one of the most competitive societies in the world and a symbol of that became the famous chinese 996 work culture a culture of working from 9am to 9pm 6 days a week this tradition was born as the chinese economy was opening up in the 1980s when working overtime was encouraged by the government as a way for the country to get ahead and grow the economy even faster and over time this culture was adopted by the chinese companies because having fewer people work more meant that not as many workers were necessary and the companies saved money on wages while this culture is mostly associated with tech and i.t sector its principles are applied in many other sectors as well as cases of deaths from overworking under the 996 system include people in various service professions like logistics workers and delivery drivers and while technically it is now illegal how much these regulations are actually enforced is a different question and considering that three-quarters of all urban workers in beijing suffer from medical issues related to overworking the extremely intense work culture does not seem to be going anywhere anytime soon on top of the pressure to financially succeed against the odds and dealing with the toxic work culture young people in china have to deal with another new challenge a growing unemployment rate in 2022 the youth unemployment rate reached a record level of almost 20 percent and while a part of it can be blamed on the slowing down of the economy due to the continuing covet lockdowns the long-term trend is caused by china's over-education problem because education is perceived as the best way to move up the socio-economic ladder in china the amount of college-educated people has skyrocketed in the last two decades in 1988 1 million people graduated college in china but this year it was 11 million people and while china's economy has been transforming from manufacturing to services and the demand for college-educated people has been growing it is not transforming nearly fast enough and there are simply not enough qualified jobs for the amount of qualified people especially because a number of the sectors that employ a lot of college grads in china like tech or education have been affected by the recent government regulations so much that they are firing more people than they hire all of this has actually had a contradictory impact on young people in the country the situation has produced movements that encourage people to give up and stop trying these movements like lying flat and let it rot encourage people to reject the competition and stop pursuing these goals because they are impossible to achieve that's obviously something that the government doesn't want to hear and it is trying to fight with both the movements themselves and the reasons for their existence but so far without much success and meanwhile these issues are still very small compared with what's about to come the thing is that any problems that china was dealing with in the past were watered down by the enormous chinese economic growth but now that the growth has slowed down a lot of the underlying issues are really starting to come out on the surface and the country is facing what could be a perfect storm of several different economic crises we already said that china has been going through a bit of a real estate bubble but not how bad it really is the property development sector makes up a huge part of the chinese gdp almost one third of it and it has been one of the major drivers of china's economic growth in the last two decades but as it turns out the growth of the property development sector and the real estate market has been incredibly inflated because there has been such a demand for homes and their property prices have been growing so fast the market as a whole turned into a massive speculative bubble as everyone assumed that the prices would grow like this forever and that motivated the large property developers to put more and more projects on the market taking out larger and larger loans to be able to do that but lately this has been getting out of hand many of the biggest developers have been having major financial issues and while everyone has heard of the second largest chinese developer evergrand running out of money the same thing applies to a large part of the sector as a whole since they are running out of cash many of them were forced to stop construction of ongoing projects but this has sparked a wave of mortgage boycotts people are refusing to pay mortgages for flats that have not yet been built and whose construction is now on hold because they are losing faith that they will ever be finished and it looks like many of the big real estate developers might not even survive and this is where the real estate crisis is overlapping with a debt crisis as now the already cash-strapped developers have even less money to finance their own gigantic debts and potentially this could transform into a banking and financial crisis as well if people stop paying their mortgages and developers will not be able to pay their debts banks will soon start running out of money as well and at that point all the bubbles might start bursting one after another and the whole system might start crashing down and on top of everything 2022 has been the first year in decades when china's population has begun to shrink this means that china is now entering an era when its population will be getting smaller and older and it will not be able to rely on its population growth to boost its economy instead it will face the same challenge as other developed economies how to sustain growing numbers of older people with decreasing numbers of young people we don't know if the debt crisis the real estate crisis and the banking crisis will all unfold at the same time but one thing is sure china is dealing with a lot of issues already and more are about to come very soon even one of them would be a challenge for any government to contain but if all of them unravel at the same time then the chinese economic miracle might have a very dark ending

Channel: Explained with Dom

Views: 203,771

Keywords: china crisis, china collapse, china economic collapse, china economic crisis, china financial crisis, china real estate bubble, china debt crisis, dark side of china, china mortgage boycott, china banking crisis, china bubble, chin

Id: sRegqtBFjEo

Length: 13min 34sec (814 seconds)

Published: Sun Aug 14 2022