It’s Over: China’s Economy Is Finally Collapsing

China's economy is in trouble, and fears the country is quote "a ticking Time Bomb." The debt super cycle that came from the U.S. and Europe after the 2008 financial crisis could be knocking on China's door. They said that it is over.

"What's up, Graham? It's guys here, and it's official: China's unstoppable growth has just come to an end." That's right. Despite being the world's second-largest economy, their financial system is falling apart. Youth unemployment is so high they've stopped reporting it, and now they risk an even worse property crisis than before, with yet another one of their largest developers just moments away from a default. This is just the tip of the iceberg in terms of what's to come.

That's why it's crucial that we break down exactly what's happening, why China's situation continues getting worse, and the impact this is about to have on all of us in the United States. I have to say, the more I look into this, the worse it seems to get. Although before we start, if you appreciate all the research and information that goes into making a video like this, all I ask for in return is that you hit the like button or subscribe. That's it! It helps out the channel tremendously, and as a thank you for doing that, I'll do my best to respond to as many comments as possible. So thanks so much, and now let's begin.

Alright, so I've said this before, but it's a bit of a background. Up until somewhat recently, China was on an unstoppable trajectory. That's because for the last 30 years, China’s been at the forefront of production, international investment, and rapid productivity—all because of an exchange that occurred back in 1979, which gave China diplomatic relations with the United States and, by extension, the rest of the world. Once that door was opened, money poured in. Countries from around the world invested in Chinese infrastructure, took advantage of low-cost labor, and helped bring much-needed funding to areas that were previously closed off.

At the time, growth was so impressive that in 2001, China became a member of the World Trade Organization as a way to further strengthen ties with the United States. But it didn't go exactly as planned for the United States. It quickly became apparent that demand for low-cost Chinese goods increased way faster than expected. More and more products were being outsourced elsewhere, and corporations moved 6 million jobs overseas to allow for higher profits.

Now, even though this did bring down the cost of everyday items that we use here all the time, for China, the benefits were monumental. With all of the increased worldwide trade and foreign investment, more than 400 million people were lifted from poverty. In addition to that, their economy is now 11 times larger today than it was back in 2001. They became the world's largest exporting nation in 2009, and they were even touted as the world's economic miracle while they grew at a faster pace than any other nation.

However, not everything was exactly as it appeared on the surface. Because the more China grew, the more powerful they became in relation to every other nation. The more leverage they had to put on businesses that they could then control, and the more difficult they've become to join forces with. In fact, members of the World Trade Organization allege that China has been providing illegal state subsidies to businesses to export their products, discriminating against companies that don't buy from Chinese manufacturers, and controlling supply chains through taxing raw materials.

Even worse, it's said that they've been purposely devaluing their currency by as much as 40 percent as an incentive for other countries to buy their goods at a discount, leading, of course, to fake economic growth that's largely unsustainable, kind of like what we're seeing today.

First, we have youth unemployment, which was so bad they stopped reporting it. Now, even though this looks like an absolute train wreck from the outside, the truth is all of this really began in 1998 when China created an expansion on higher education. This provided much-needed funding to build schools, hire professors, and offer scholarships for those in need.

The entire goal of this was to create a knowledge-based economy, satisfy the demand for higher-educated workers, and eventually grow their country to compete with the rest of the world. As a result, it's said that Chinese universities accepted about 1.6 million students in 1999, up more than 47 percent from the previous year. In a way, it made higher education more like mass education to anyone who was even remotely interested, even for those who lived in rural areas or came from lower-income backgrounds.

However, as we could see today, there was a bit of a problem in that higher education expanded faster than market demand, meaning that there are more college graduates than there are jobs to pay them. As a result, a high portion of Chinese youth is unemployed. As it stands right now, the jobless rate of 16 to 24-year-olds rose to 21 percent, which has been steadily rising each and every year since the survey was started in 2018.

In fact, the unemployment rate has gotten so bad that lottery sales have increased by 50 percent because young people now see hitting the jackpot as their only way to achieve financial freedom. In response to this, more and more Chinese youth are choosing to stay home to take care of their parents or be a stay-at-home son or daughter because there's no other work available—especially when it's expected that 30 percent of China's population is going to be over the age of 65 by the year 2050.

Of course, China disputes all of this and says it's a big misunderstanding. They're no longer reporting on the unemployment rate; instead, they explain that the surveys used to collect the data just need to be further improved and optimized, which most people tend to believe is their way of simply twisting the narrative to be a little bit more positive. But I'll let you be the judge of that, and you could come to your own decision.

At the end of the day, though, this is really only the very beginning. Because in addition to that, we also have the real estate crisis. See, throughout the last decade, China has experienced massive real estate bubbles. Their citizens prefer to invest their money in property as a safety net, causing prices to increase double digits year after year.

In fact, China was building five times as many homes as the United States and Europe combined, and supply was still so limited that several cities used a lottery system to allocate them, some with odds as low as 1 in 60. That led to 70 percent of the country's wealth being tied up in real estate, which is more than twice as high as we have here in the United States.

At that point, property values were increasing so quickly that developers would pre-sell units where buyers would begin making payments on a property that didn't even exist yet. It didn't matter how much it would cost; some buyers would pay up to 23 times their annual income to buy a home, with a mortgage sometimes making up more than half of their gross take-home pay. They would borrow money from friends and family just to say they owned a property. I think you could see where this is going.

The real estate market here was so in demand that prices increased 700 percent from the year 2001 to 2017. So, in an effort to curb appreciation, the government came out with more regulation to restrict who was able to get a loan. As they've said, homes should be for living, not for speculation. But it was too little, too late.

With China's economy suddenly slowing down, property developers had a harder time raising capital to stay afloat. They couldn't afford to finish all of their in-construction units, and even though this started with the property giant Evergrande, within four weeks more than 320 projects in about a hundred cities were facing protests, roiling markets, and forcing authorities to corral banks and developers to defuse the unrest.

Flash forward to more recently, Evergrande filed for bankruptcy, and today an even larger property developer, Country Garden, is also facing similar concerns, having been warned that they may also default on their debts, which is as high as $230 billion across nearly 1 million unfinished apartments. And yes, that's billion with a "B."

Be sure to hit the like button and subscribe if you haven't done that already! Anyway, in response to this, China began lowering their interest rates as a way to help spark economic growth. But just like the previous situations before us, it's often too little, too late.

With more than 50 developers having already fallen behind, this leads to yet another economic disaster, which is deflation. For those unaware, deflation is practically the opposite of inflation, where instead of prices rising, they're falling. Even though this sounds like it could be a good thing, it's not.

See, when prices come down, it's a sign of less demand. And when your money becomes more valuable the longer you hold on to it, the less likely you are to spend it, which causes prices to fall even further and starts the cycle all over again until eventually companies scale back, produce less, and the entire economy falls into the abyss. Okay, that might be slightly exaggerated, but you get the point.

In China's case, their consumers are very reluctant to spend money after three years of lockdown, resulting in prices falling 0.3 percent in July. Companies are also taking note of this and reducing their workforce, which leads to even more deflation with less money available to be spent. On top of that, it's also said that Chinese consumers are spending less in part because a slump in housing prices has affected their savings, much of which are tied up in property.

Jobs tied to the housing market that were once abundant are disappearing, and the uncertainty of how far the crisis might spread is leaving companies and small businesses afraid to spend. This suggests that as the real estate market falls, consumer spending is only going to get worse. As one analyst wrote, we're witnessing a gear shift in what has been the most dramatic trajectory in economic history, especially since real estate makes up 30 percent of their GDP.

Now, on the bright side, falling prices in China may very well help our own inflation battle here in the United States since weaker foreign demand has less influence to push up prices. But for China and its investors, slower demand is likely to lead to slower growth, and that will come at the expense of their own citizens if and when the market collapses.

And finally, the straw that broke the camel's back: a shadow banking crisis. See, unlike the traditional banks that have a very strict framework in terms of how they're allowed to operate, shadow banks are allowed to operate within the unregulated industries, including hedge funds, private equity, and investment banks, without all the red tape that somewhat gets in the way.

Now, don't get the wrong idea because these shadow banks don't operate like a typical bank account where someone comes in, makes a little deposit, and has a checking and savings account, and so on. Instead, these shadow banks mainly cater to other businesses, funds, and large investors who want a higher return than usual. Except in this case, a lot of those returns were pegged to the real estate market, which, as you've seen, is not doing so well.

And that brings us to today. One of China's largest shadow banks is now under a microscope after missing payments to three publicly traded companies, resulting in protests outside of their offices in Beijing. What makes this even worse, however, is that there is a strong likelihood of contagion spreading throughout the entire market. After all, if they don't make their payments, companies don't get their money, and if companies don't get their money, that means they could fall behind with their investors, and essentially that could cause a domino effect throughout the entire economy.

Now, as for their official statement, a potential informant said, "We can't make any public announcement now. The main reason is that we are still actively checking our underlying assets, and we're trying our best to recover the assets for you. Now, if we disclose the underlying assets for a certain product, it might cause a dramatic shrinking of the assets. We can't do this because this is being irresponsible."

Now, keep in mind that none of that is confirmed, and it's probably just as likely to be coming from a random person who is just making stuff up. But I do also have to say it is a real concern that should be taken seriously.

And in terms of how this could affect the rest of the United States, here's what you need to know. The good news is that it appears as though the United States has very little exposure to China's financial crisis.

For instance, one analysis explains that in the big picture, the United States controls about $215 billion of direct investment in China, along with $300 billion worth of portfolio investments consisting of their stocks and bonds. So if you could do the math, that's about $500 billion worth of direct investment. So, even though that sounds like a large number, in comparison, the United States stock market is worth $46 trillion. The entire value of all of our real estate is worth another $43 trillion, and U.S. office buildings, which are said to be the epicenter of the next financial meltdown, are worth $2.6 trillion.

Or yes, in other words, our exposure to China is such a small fraction of a percent that any disruption in that is not going to have a sizable effect on our economy. On top of that, it's also said that China's contribution to U.S. trade is less than one percent of our GDP, so it's also unlikely to have a large effect on consumer demand.

Instead, I tend to think the bigger concern here is irrational investors panicking over nothing and causing temporary sellouts. But then again, something like this isn't necessarily anything new. In the long run, all of this is a reminder that China still has a very long way to go if they want to overtake the United States and eventually replace the U.S. dollar.

So, with that said, you guys, thank you so much for watching. As always, feel free to hit the like button and subscribe, and I'll do my best to respond to as many comments as I possibly can. Oh, and also don't forget that you could get some free stocks worth all the way up to a few thousand dollars when you make a deposit using a paid affiliate link down below in the description. Feel free to do that; it'll take you like 10 minutes to do. It's a pretty good ROI. So let me know which stocks you get.

Thank you so much for watching, and until next time!