Is China Going Broke and Taking the World With It?

Is China Going Broke and Taking the World With It?


The Chinese economy is hurting badly What does this mean for the rest of the world? Welcome back to China Uncensored. I’m Chris Chappell. Joining me today at the Oslo Freedom Forum
in New York is economist and China expert, Christopher Balding. He taught in China for nine years, and now, he’s an associate professor at the Fulbright
University, Vietnam in Ho Chi Minh City. Thanks for joining. Thanks for having me, Chris. So, China just posted GDP figures for its
third quarter and it’s the lowest it’s been in 27 years. What does it mean that the official figures
are that low? If the official figures are that low, it means the reality is that much worse. I think most economists, in reality, are looking at a GDP growth figure, probably
half that. Some are speculating it’s even worse than
that. Well, so what does that mean? That basically means that China is growing
much slower and we’re actually seeing this across a range
of activities. If you look at the consumer sector, which China is touting as the great growth
hope, actually we’re seeing, in a lot of areas of the consumer sector, declining growth. Car sales are down significantly, phones are down significantly- Are these Chinese-made cars and phones, or imports of Ford and iPhone. So, in the automotive sector, China actually makes most of its own cars. It imports relatively small amounts, primarily of luxury vehicles, but China actually produces and consumes most of its own vehicles. And so, with the depth of decline that we’re
seeing in consumer durables like washers and dryers, refrigerators, air conditioners, cell phones,
automobiles, and even the food staple, pork, it’s very, very difficult to see how, for
instance, the consumer sector is growing strong enough
to drive the Chinese economy towards a 6% real GDP
growth figure. So, are these lower GDP numbers, whatever they may actually be, an effect of the trade war? No, these are actually an impact from, really, Chinese domestic policy over the years. A couple of things that we’re seeing, for
instance, are really high debt figures in households
and corporate sector are really restraining a lot of purchases that people might be making. Again, if we focus on the consumer sector, Chinese households now actually have more
debt than most developed countries like the United
States and Japan, things like that, when compared against household
income numbers. And, this is also impacting the corporate
sector. We’re seeing a very restrained investment
growth in China because, even though credit is being pushed, there’s been so much previous investment of
things that have been built, and now, there’s over capacity in a lot of
industries, in real estate, in other sectors. And so, people are quite fearful to actually
go out and invest if they don’t believe it’s a profitable
project. So, this is not so much an effect of anything the Trump administration is doing as much as it is systemic problems with how the Chinese communist party has been managing
the economy. That’s absolutely correct. Probably the most that you could say about
the Trump impact, if you will, is that it would be the straw that breaks
the camel’s back. It’s additional stress. It’s absolutely not
the driver. And again, just more sense and perspective of what we’re dealing with, you’ll frequently hear that the trade war is driving this global slowdown in growth
or in trade. And, actually, that’s not correct because
this slowdown in growth, slowdown in trade, is centered in China. If we look at Chinese trade patterns with all of its partners, everywhere from Germany to Australia, Indonesia,
Thailand, so we’re looking, really, to a very broad
range of countries. Trade with those countries is down across
the board, and this isn’t just inputs that might go into
an iPhone that end up in the United States. These are products that are going to end up
in China. Iron ore exports from Australia to China are
very slow. High quality machinery exports from Japan and Germany to China are very slow. So, we’re not just looking at a narrow range
of goods where there’s a trade slowdown with China
and its partners, but really, across the board, across a wide, wide range of countries. So, because of the systemic problems within
China that’s creating a slowdown in their economy, which is creating a global economic slowdown. Is that right? I think that’s much more accurate. If you look at the countries that are really experiencing some economic pressures, if you
will, Germany being a good example. They’ve taken a significant drop in their
exports to China and that’s having a, a significant impact
on the German economy. That’s not from the trade war. Germany does not export a lot of products to China that go through China, get processed, and end up in the United States. Germany is exporting a lot of high quality
chemicals, precision machinery, luxury automobiles, things
like that. I love German chemicals, myself. German chemicals are some of the best. Very different from Burmese chemicals, but- Low quality Burmese chemicals. Low quality Burmese chemicals. And so, we see this spillover that this is impacting a lot of countries from all over
Asia and all over Europe. So, if the Chinese economy continues to slow
down, what will that mean for the global economy? I think it’s going to mean that there’s going to be a sustained global slowdown
as well. I’m not necessarily of the opinion that you’re looking at a global recession in the classical sense. Typically speaking, global growth recession is considered if growth drops beneath, say, two to 3%. I think it is possible that you will see global growth drop beneath two to
3%, which some might consider a global recession, but we can expect that to, I think, continue for the next couple of years, for
sure. There’s been a lot of talk about decoupling the U S economy from China. Would that protect the US economy if there is a Chinese economic crash? Well, one of the things that you’ve seen go on throughout this trade war is that actually US trade numbers, in aggregate, have continued to grow at a relatively steady
pace. There really hasn’t been much of a change. And so, everybody is saying, “Well, wait a minute. Why are we seeing trade numbers into the United
States grow, essentially, on trend?” Well, the reason is very simple. Basically, the increase in exports from countries
like Mexico, Vietnam, Thailand, places like that, is being offset by the decline in exports
from China. So, basically all we’re seeing is, these Chinese exports move to other countries, and so, basically, we can expect this process to continue for the next few years. Just this week it was announced that, actually, Samsung has moved all of its production out
of China. And so, it’s very big in Vietnam. They’ve been moving into India. Apple has supposedly set up manufacturing
in India. And so, basically, we can expect this decoupling to continue for the next few years, for sure. So, over the years, many companies have really tried to get access to the China
market, but it seems like these risks have been known
for a long time. Why did they make such a push to get into
the China market? There was always this mythical, if we can just sell one t-shirt to each person
in China, that’s a billion t-shirts in sales. So, whether it was t-shirts, or financial services or automobiles, that was the focus. And, for a long time I think people, companies, were willing to make those trade
offs because they were making a lot of money. They were entering a semi-protected market. They were working with SOEs most of the time, investments of any significant size. SOEs being State-Owned Enterprises. State-Owned Enterprises. And so, these companies were making a lot
of money. As things have changed for multiple reasons, the growth isn’t what it is, there’s surplus capacity under the Xi administration. The state has taken a much more central role
in everything. I think companies have really begun to question
the trade-offs that they have to make to be in the Chinese
market. And so, is that a result of them changing or the changing situation in China with the economic downturn? I think it’s a function of both. You know, if you had confidence in the economy, you could say, “Okay, well there’s a downturn
right now. If you start layering on the factors of, “Oh, well, you know now I have to hire some communist party bureaucrat just to hang out in my company all day. Now if I know that they’re going to be stealing
from me, and now I know that I’m still going to be
asked for bribes, and all of these other things.”, tariffs, concern about Chinese politics, it definitely, in aggregate, pushes companies
to leave. We don’t see, historically, in any country, we don’t see companies choose to locate in
a country, or move to another country, for any one reason, whether it’s a tax break or politics, whatever
it is. It doesn’t happen for one reason. And so, companies moving is likely a reflection on their overall confidence in China. So, the Chinese communist party has a lot of control over the economy. That’s the whole point of a state-led economy. What do you think the next thing they’re going
to do to tackle this falling economy? So, the most recent rumors or news reports, take them for what they are, involve, essentially, more of the same. They’re going to increase local government
bond quotas, that they’re going to push investment. It will be interesting to see, they’ve made some concessions about opening
up markets to foreign financial service providers. It will be very interesting to see because, as in China, they can change the rules, and nothing changes at the end of the day. So, it will be very interesting to see how
that plays out. I think what it, what is notable is, to me, as I look at these changes, and what I see
are, first of all, more of the same, like increasing the local government bond
issuance quota. That’s basically just allowing local governments to issue more debt this year. We’re in October and they’ve already exceeded
the quota for the year, and so, they’re going to allow them to issue
more. So, it seems like part of it is more of the
same, which is not a good recipe. And, I think what is concerning is, is that they’re still trying to fiddle around the edges as Rome burns, for lack of a better term. What do you mean by that? There are very large, systemic, fundamental problems with the Chinese economy and they’re just not dealing with them. And so, increasing the local government bond
quota for the year is going to put a bandaid over a gunshot wound. It’s not going to fundamentally address the
problem. And, I think that is the problem they just still don’t want to face up to. Well, you said they’re doing more of the same. They’ve been doing this for years, and people have been saying the Chinese economy is going to collapse for more than a decade
now, but more of the same has kept the economy
working. So, will this work? Well, it depends on what you mean by work. I think one of the things is in… I have a good friend that gave me this theory, which I’ve been increasingly leaning in this
direction, is that as long as they continue increasing
the money supply, debt, continue building things, even if nobody necessarily lives in those
buildings, e ven if those office spaces aren’t occupied, things like that. What their goal is they need to keep growth
going. Well, to prevent any real risk to their goal
of build, build, build, even if nobody’s going to live
there, they have to, basically, essentially, begin closing themselves off more and more, because that is going to lower the risk of
debt problems, that’s going to lower the risk of currency
problems. Okay? And, I think that’s what we’re seeing within the Chinese economy right now. That is their growth model. They have to continue doing that. And, I think we’re going to continue to see a further closed-off China from the rest of
the world. And so, if the Chinese economy does collapse, what does that mean for the Chinese communist
party? Well, I’ve always been of the opinion that I don’t like to talk about a Chinese
collapse or financial crisis, for multiple reasons, but I think one of the most fundamentalist as to why I don’t like that type of terminology is that the Chinese communist party, and to answer your question, the Chinese communist
party has a very fundamental interest in making
sure that there is never a financial crisis or significant economic problem. Their entire governance campaign slogan is
on economic management. “We will give you a better standard of living, and you have to accept these trade-offs.” And so, if there ever is a serious economic
problem, it’s probably not going to end well for the
CCP. And so, this tells us, and I think this fits pretty closely with
what we see empirically, is that there is no bailout too big. Okay? There is no check that they will not write
to say, “We’ll just sweep this under the rug some
way, well we’re merge it into another company. We will set up a bad bank to buy out these
assets.”, something like that, “So that we can keep the plate spinning. So that we can keep it going.” And so, that tells us, the analogy that I’ve
heard is that they will be very happy to be, essentially, the way I would describe it is, North Korea with a higher level of income. And, I think that seems to be more and more the way that the world is moving. What happens to the rest of the world if China can’t make a bigger bailout. Well, it depends on which it is. If it’s within China, the world will probably
say, “That’s your problem.” Okay? If it’s a steel company in a Heilongjiang, the rest of the world’s probably going to
say, “Okay. Hey, have fun with that.” Okay? The real risk, and I think you are seeing
real pressure in this now, is if there is some type of US dollar-denominated
bond issuance that they cannot repay for some reason, and especially if it’s some type of local
government, because what that would do is that would cause
a lot of investors, especially those that don’t pay a lot of attention
to China, they think of local government as almost sovereign-level
debt. And so, if some of these companies started being unable to replay their US dollar liabilities, all of a sudden you have bankers that would
say, “Well, wait a minute, we’re not going to buy those US dollar-denominated
Chinese bonds.” All of a sudden, there’s a lot of US dollar
tightness. All of a sudden, they’re going to have trouble
buying imports. All of a sudden, it becomes a much bigger
problem very quickly. And, at that point, the world would take notice
very rapidly, and it would put a lot of risk on the CCP. Well, so what would that mean for your average
American? It depends. So, with the flows that we’ve
seen into a firm like US pension funds into bond
indexes, that’s specifically by Chinese debt, and in
US dollars, it could mean that they would see some type of drop to their pension or 401k. That’s a distinct possibility. Generally speaking, because it would probably be chaos in the
markets, for lack of a better term. In reality, the amount of exports to China
as a part of total GDP are not large for the United States. So, it probably would, would not have as significant
an impact as other potential major financial and economic
events. Well, thanks for joining me. That was absolutely fascinating. Thank you very much for having me, Chris. Appreciate it.

100 Comments on "Is China Going Broke and Taking the World With It?"


  1. If you enjoyed this interview, please check out our other interview with Christopher Balding on our podcast China Unscripted! https://www.youtube.com/watch?v=m7mGGI2KzoQ

    Reply

  2. Every citizen needs to take their country back! Fark Globalism! Fark China! Send the Chinese back to their Mao level peasant lifestyle! It will be far more sustainable for them and the Western World at the same time!

    Boycott all Chinese manufactured products if you have a choice!

    Reply

  3. Like any company or corporation, the CCP has grown China, Inc. to a point where the world is no longer buying all they're selling. With market forces at work, 'cooking the books' may no longer be a viable option.

    Reply

  4. 这个傻逼频道下面,一帮仇视中国,从来没有去过中国的键盘侠,也是他妈的醉了。。

    Reply

  5. Chinese commonist commissaris is shocked colonise and fight europans and australiant and continents throuug regim en ts of incumbent 9dragon commanders in jokowi xijianping ,said foreign analysts,

    Reply

  6. Naw ! There going to self adjust and create a stable economy not dependent on surplus 400 billion in profits from USA . USA can not keep bankrolling them

    Reply

  7. Regarding slow car sales in the United States, the car companies and corporations have gotten way to greedy, a pick up for $80,000 are you kidding? At best it should be in the high 30's if you want to sell it, next let's see what the GM car dealers charge for the $60,000 new 2019 Corvette?

    Next, when China fails she will blame the USA for the horror show she has created, just wait and see if she cannot make her country buy that line of garbage the Communist Party will probably will have lost the support of her population. You cannot spend $7,500 USD to build a stripped 400 sq. ft. house and charge $125,000-135,000 USD equivalent for a 50 years lease like they were charging in Hangzhou circa 2010.

    Reply

  8. Their entire economy is built upon STOLEN Western technology which DUE TO THEFT, has naturally SLOWED DOWN (even their economic system is BORROWED from the Germans and Russians).

    Reply

  9. Chinese commonist anent centri marketing fentanyl and chinese commonist international polical organ humans and chinese commonist international king is iying and chinese commonist king hoaxes

    Reply

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    Reply

  11. So American investment firms buying Chinese debt might lose their money because municipal/provincial Chinese governments might default due to the economic slowdown and the excessive debt issuing they are doing now to compensate for that? And as a result, those American investment firms will get fucked and this will damage the US stock market and therefore US citizens looking to retire/invest? Not good.

    Reply

  12. Chinesehand commonists and jengishand and kubilayhand in bussines fentanyl in history and chinesehand mayorty commonist commisaris is shocked to colonise and fight europans and australiant and american in the world continents throug masive

    Reply

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    Reply

  14. I wonder of Chris will ever be able to take a vacation on the great wall of china.

    Guess he will have to settle with the american wall on the border

    Reply

  15. Or is it that china is plateauing because they ate all the manufacturing? What happens when automation makes it cheaper to manufacture where things are bought?

    Reply

  16. It means the rest of the world can finally be free of communism!!! Good for the globe if China falls and makes way for a truly free society in Asia. Fuck China and their inhumane treatment of its people and neighboring countries as well as the horrible abuses of the environment they are guilty of. They are single handedly killing the earth.

    Reply

  17. Xi must be butt hurt that I called for his resignation. I met that guy in my past life and he was selected to become president because he is a real piece of work. His work showing through brightly now. The world is going to have to get their shit together because most of it will fall apart if they dont wake the fuck up. And people like XI should be removed by their own people. Hopefully the world doesn't have to force him into submission because im sure he will behave as fagdaddy did. I pray I am wrong.

    Reply

  18. Ridiculous. I will what exact happening for economic in China. Attention, you western analysis for economy does not work in China mainland at all. Time observes the reality.

    Reply

  19. China may be economically slowing and suffering, but so is the usa, trade wars hurt everyone and the citizens are the ones hurt the most as consumers are left holding the bill.

    Reply

  20. Except that when the collapse does eventually happen, it will be the poor and the ordinary Chinese citizens that suffer the consequences. Their jobs, their savings, their future will be decimated. The rich and the powerful have already taken out foreign passports and shifted much of their wealth out of China. They will be taking refuge in the evil western countries that are supposedly plotting China's downfall. It will be regime change with very obvious Chinese characteristics.

    Reply

  21. hate to say it….China is more capitalistic than U.S…Capitalism, in theory, is riddled with uncertainty and corruptions.

    Reply

  22. Please don't make China's production looked important to the rest …and even somewhat it look like so. You don't want a government with the guts to dig out its citizens' organs to sell out for profit, becomes significant important to the wellness of the rest of the world. The pre-China trading era was the best time of the Freedom world until then. Remember?

    Reply

  23. What a moron… China going broke has everything to do with the Trade war. Yes there are other factors but they would have gone on unnoticed if not for the trade war.

    Reply

  24. Full metal jacket
    Ho Chi Minh Is son of a bitch,
    Vietnam young brother china, all communist party, government rich, people poor. damn you

    Reply

  25. Bro I know you love to hate China but like… LMAO you white people have been saying China’s economy will slow since the 90’s. Get off the hate train please

    Reply

  26. Anyone who has looked at almost anything constructed in China – it is done for the process, not as an end-in-itself to make item 'a.' Asca result, EVERYTHING is falling apart. Try to rent an apartment in Beijing for less than $2000 USD per month that has hot and cold running water in each faucet and electricity in each outlet.

    Reply

  27. I think this is all porkys, and China is doing just fine. They will be pulling the wool over everyone's eyes to make them think that they're in strife when it is the compleat opposite.
    Look people, they bluff everything and lie through there teeth for there benefit.

    Reply

  28. Never trust the official Chinese numbers, all lies! Totally inflated. I wouldn't be surprised if they have a negative GDP, a shrinking GDP. Out of all the Chinese cities and provinces, only Shanghai is doing relative well with a positive cash flow which means no financial assistance from the central government. Rest of China all getting a hand out from the central government, including Guangdong.

    Reply

  29. The GDP numbers are faked. The growth figures have been exaggerated since 2008. The GDP is 20% lower than most people think it is.

    Reply

  30. trump ruined China for me.
    I can't stop laughing reading the word chaaaaina.
    i wish he wins 2020.
    from Iran,with lol.

    Reply

  31. Two things seem to be happening here:
    1) Xi seems to be forgetting what caused Chaing Kai Shek to be replaced by Mao Tse Dong: Hyperinflation. Hyperinflation is NEVER good for regime stability.

    and

    2) China is dumping U. S. bonds big time to acquire hard currency to avoid hard dollars denominated defaults. This is a major factor in the U. S. REPO crisis.

    It will be quite interesting to see what happens when they run out of bonds to dump.

    Reply

  32. I try to catch-up with happenings with China’s economy whenever I have an opportunity to listen. Most of the time the questions are too scripted and the responses meaningless -> MSM style gibberish!

    This was the most naturally flowing and informative interview I have ever heard on the Chinese economy. Fantastic job chaps! I will watch this vid again in a few days.

    Reply

  33. Its hard to read the captions when your laughing…. Good interview like always. Your an intellectual comedian! 😎

    Reply

  34. Usually people are lying 99% of the time if they say erm alot during any conversation like this dude whos probably lying and the elite will be controlling tbese lies or controlling things coz its the the elite that want to rule our governments dont want a free world they planned all this for years plus china recently had a moon mission? Doesmt make sense considering they took their time with going into space like that lol

    Reply

  35. China now is West Korea. Chinese government claims every one will become "middle class" within two months.

    Reply

  36. Companies are not going to make billions of $….The Chinese will copy their products and sell them their self for much lower prizes…. This has been going on for years already..

    Reply

  37. china is like a pig always scratching to the inside, never give out. so if china goes down to hell the rest of the world should be able to adjust to the situation.

    Reply

  38. So, Australia hasn't had a recession in 27 years, and China hasn't recorded these kinds of bad figures in 27 years – Coincidence much.. Australia is fucked..

    Reply

  39. The interviewee has deep insights into the Chinese economy and it sounds like that he lived in China for many years and feels as a non-communist Chinese does. I can't agree more with him.

    Reply

  40. my country is currently perfectly fine getting broke by its own. doesn't need China to do the job. 120k jobs cut in big firms. recession is starting. difficult to estimate how many unemployed this will mean, could easily be 1 or 2 million. talkin' about Germany by the way.

    Reply

  41. In most cases than not, china's growth is beneficial for the rest of the world and especially for the chinese people, as their economy grows more and more people will get out of poverty and so will other asian countries. Saying that you don't support their economy isn't just bias against the chinese people but it also shows how you think life is just rainbows and candy.

    Reply

  42. It's the 90th anniversary of The Great Depression

    We're about due for the next one. The Great Depression will pale in comparison to this next one….
    I hope you lot have your gold, silver and Bitcoin horded!

    Reply

  43. Like it or not, Trump really is making America great again…
    – actually dealing with a problem that’s existed for a decade
    – increasing American production
    – ramping up the GDP
    – removing a primary rival in the economic and military field
    – increasing the amount of political discourse

    Reply

  44. With the $10 billion worth of propaganda China is paying to convince the world that they are good blokes, it continues to amaze me why they bother. Absolutely no one I speak to believes a word that comes out of China.

    Reply

  45. We had been hearing that China is broke,going to be broke and will soon goes broke for years and years but by looking at their vast investments and loans to other countries,their innovative technologies and infrastructures,you can tell that those Anti China White Supremacy agents are talking nonsense,America alone,owes China 1.4 Trillions dollars.Since 30 years ago,Western Economists had claimed that the Chinese are doing it wrongly just because they doesn’t conform to their own ways and ideology,it’s seems,if it’s not their ways,it’s doomed.Frogs in a well.

    Reply

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