Valuetainment - September 06, 2023


China’s Catastrophic Economic Crisis - Is The Bubble About To Burst？


Episode Stats

Length

14 minutes

Words per Minute

221.68082

Word Count

3,306

Sentence Count

251


Summary


Transcript

00:00:00.000 I don't know if you're following what's going on in China right now, but some are saying China's going through a real estate apocalypse, literally.
00:00:04.720 I mean, think about how competitive these guys are.
00:00:06.720 Some can say Americans are the most competitive people in the world.
00:00:09.160 However, did you-
00:00:10.080 A Tim's donut and coffee is the original collab.
00:00:12.560 And now, any classic donut is a dollar when you buy any size original or dark roast coffee.
00:00:16.760 Get a deal on the iconic duo with a Tim's dollar donut.
00:00:19.780 Plus tax at participating restaurants for limited time.
00:00:21.780 Terms apply.
00:00:22.320 See app for details.
00:00:23.160 It's time for Tim's.
00:00:24.540 You know China has a city called Tian du Chang that they built the exact Eiffel Tower in that city.
00:00:32.920 They built a strip just like Champs-Élysées where in the real estate that you buy in the city is so expensive, kind of like how it is in France.
00:00:40.080 That's how competitive this place is.
00:00:41.680 However, China's got a big problem.
00:00:43.380 Something crazy just happened this last month.
00:00:45.360 Country Garden Holdings, which is their biggest real estate company developer in China, that did 441 billion wands last year, just missed the debt payment.
00:00:54.780 You ever missed a credit card payment?
00:00:56.140 You were like, I forgot to make that payment.
00:00:57.620 Who calls you?
00:00:58.140 The credit card company.
00:00:59.100 They just missed a debt payment.
00:01:00.320 You know how much it was?
00:01:01.120 Just 20 million wands.
00:01:02.440 And they missed it.
00:01:03.620 And in China, there's all these cities called ghost cities.
00:01:06.680 They have 65 to 90 million vacant homes.
00:01:12.160 Everybody's looking at the data saying China's selling themselves as they're doing really good.
00:01:16.220 But wait till you see when we compare them to another case study of another country that grew as fast as they did.
00:01:22.420 You should see what happened to them next.
00:01:23.920 If you get value out of this video, give it a thumbs up and subscribe to the channel.
00:01:27.200 Do you remember earlier this year or last year when Silicon Valley Bank or Signature or it was a couple other ones that went out of business and others came and picked them up because they were rates were going up too quickly.
00:01:37.900 They couldn't make their payments like, oh, my God, what is going on over here?
00:01:40.300 Now, imagine if that happened to JPMorgan Chase or a BlackRock because this company we're talking about is not just one of the companies.
00:01:47.180 It's the biggest company in the real estate development business.
00:01:51.020 So when you look at this chart here from country gardens, dollar bonds slumped deeper to distress levels, look at the date of June, middle of June.
00:01:58.560 You see how it's around the 80 cents on a dollar.
00:02:00.860 Look where it drops to by the end of July to around 10 cents.
00:02:03.540 It's nearly a 70 percent drop off in six weeks.
00:02:07.060 And you can't make a 20 million won payment.
00:02:11.260 You're as big as you are.
00:02:12.440 You can't make that payment, a debt payment.
00:02:14.020 That's deeply concerning.
00:02:14.980 And by the way, outside of those guys, new home sales by China's 100 biggest developers dropped by 33 percent in July from a year ago.
00:02:24.800 When you look at the numbers here, this chart, developer finance and extend drops.
00:02:28.380 So you see the black, the pink, the blue and the yellow, the black being self-raised funds, the pink being deposit and advanced payments, the blue being personal mortgages and the yellow being domestic borrowers.
00:02:36.760 And look what happened in the middle of 2021, right there, how much it was peaking, around 1.8 trillion won.
00:02:42.540 And look where it's at now, dropped to nearly 1.2 trillion won in just two years.
00:02:48.940 Again, another reason why a lot of people are concerned about what's going on in China.
00:02:52.520 However, let's continue.
00:02:53.800 Why does this matter?
00:02:54.840 Because more than 85 percent of China's houses are sold through pre-sale, up from 50 percent in 2005,
00:03:01.740 which means mortgages begin months or even years before buildings are finished.
00:03:06.680 And by the way, the reason why this is important, just last year in 2022, October, there was a massive mortgage protest in China, nearly 100 plus cities.
00:03:14.260 People coming out in WeChat, messaging each other, saying,
00:03:16.800 why are we making all these mortgage payments on a property that Evergrande, China Evergrande Group, is not even making any progress on?
00:03:22.880 They're not even building it, but they're taking our payments.
00:03:24.500 What is this all about?
00:03:25.280 To the point where the government have to get involved and say, hey, guys, you can't be doing this stuff.
00:03:28.580 If you're not building it, you can't ask people to make the payment.
00:03:31.140 So many people were frustrated, not trusting what they were doing, leading to this, now this company that's even bigger than Evergrande.
00:03:39.320 So now the reason why this is important is because in China, most of the money, the GDP is tied to real estate, very different than other countries.
00:03:46.840 Just to kind of give you a comparison, here's what it looks like.
00:03:48.940 China's real estate sector accounts for 30 percent of the country's total GDP.
00:03:52.460 In U.S., the real estate sector is only 17 percent.
00:03:55.560 In Japan, it's 11 percent.
00:03:57.000 Even in Canada, it's only 20 percent.
00:03:58.600 But in China, it's 30 percent.
00:04:00.360 So what does this mean?
00:04:01.660 That means if there's any kind of movement in real estate, they feel it more because it's that bigger piece of GDP.
00:04:07.660 Let me take you a little bit deeper on how much China believes in their own stock market versus other countries like America.
00:04:13.700 Here's what the numbers look like.
00:04:14.980 In China, only 7 percent of the population own stocks, while roughly 90 percent are homeowners.
00:04:20.200 And to make that comparison in U.S., in U.S., roughly 53 percent of the country own stocks and only 65 percent of Americans own real estate.
00:04:29.060 We're more balanced.
00:04:30.160 They're not.
00:04:31.000 They're all real estate, nothing in stocks.
00:04:33.140 What does that tell you?
00:04:33.900 We don't believe in stocks.
00:04:35.140 We believe in real estate.
00:04:36.400 And not only do they own one home, 20 percent of folks in China own two or more homes.
00:04:42.380 However, they don't believe in the Airbnb model like we do in America.
00:04:45.320 They don't rent them out because they feel it loses value.
00:04:48.140 They like to keep it brand new.
00:04:49.780 So, look, if you're running a business, one of the things that matters to business owners is jet fuel.
00:04:53.600 You need jet fuel.
00:04:54.780 What's jet fuel?
00:04:55.540 Money.
00:04:56.040 You need money.
00:04:56.640 But today, a lot of business owners are saying, Pat, I want to go borrow and get some money, but the interest rates are so high.
00:05:01.560 Where do I go?
00:05:02.320 One of the options you have is a company called Funding Grow.
00:05:05.340 Funding Grow is a great sponsor because they understand how to help small businesses get the funding they need.
00:05:09.420 Even in today's economy, they offer a 12-month membership that gives small businesses an alternative to traditional funding
00:05:14.540 or gathering investors.
00:05:16.040 They offer a way to get operating capital you need without having to deal with the current tedious and confusing red tape.
00:05:21.340 At banks, they help secure credit up to $250,000 with 0% interest and all without you giving up any equity of your company.
00:05:27.920 These guys have a great online reputation with 4,000 reviews at 4.9.
00:05:31.820 So, for you watching this, Funding Grow has a special master class where they teach you five steps on how to secure $250,000 on loan
00:05:38.620 and to learn about the stuff.
00:05:39.820 They have a $500 discount for all the people that are with Valuetainment.
00:05:42.540 So, if you want to learn more about this, go to fundandgrow.com forward slash pbd.
00:05:46.400 Once again, fundandgrow.com forward slash pbd or go to the description.
00:05:50.160 You'll see the link there.
00:05:51.140 So, now you may ask and say, why did they only put the money in real estate?
00:05:53.640 Because if you look at the chart since 1998, what you'll notice is the average real estate sale price in China every year has gone up.
00:06:01.600 Literally, if you look at this, pretty much every single year it's gone up.
00:06:04.300 And they can't necessarily say the same thing maybe about stock market or other investments.
00:06:07.440 So, they trust in real estate.
00:06:09.440 And, by the way, when you think about value of real estate or expensive real estate, what city in the world do you think has the most expensive real estate?
00:06:14.900 Some of you may say Beverly Hills, right?
00:06:16.340 And how do we really define that math anyways?
00:06:18.420 Here's how we do it.
00:06:19.280 Whatever the average salary of a person in that city is to the actual average value of a home.
00:06:26.580 For example, say you make $100,000 per year.
00:06:29.320 But the average house value in that city is a million dollars.
00:06:32.980 That's ten times.
00:06:33.980 Make sense?
00:06:34.440 Friends, look at the most expensive real estate in the world comparing it to the average income of that city.
00:06:42.120 Let me just show you this chart.
00:06:43.040 Hopefully, this will make sense to you.
00:06:44.120 When you look at this, look who you have all the way at the top.
00:06:46.920 Beijing.
00:06:47.600 Meaning, the average home there is 48 times the average salary of the city.
00:06:53.400 That means most people cannot afford to buy a house in Beijing.
00:06:56.240 Same with Shanghai.
00:06:57.220 Same with Hong Kong or Jiang Zan.
00:06:59.220 And then it goes to London.
00:07:00.500 But look how much of a drop off London is.
00:07:02.460 It goes from 40, drops to 22.
00:07:04.820 Then you got Bangkok, Sao Paulo, Rome, Moscow, Seoul, Paris, Munich, Tokyo.
00:07:08.660 Then you get to New York, which is roughly 12.
00:07:11.460 And the same is with San Francisco.
00:07:12.660 So as much as we talk about how expensive real estate is in San Francisco and New York,
00:07:16.680 it's almost four times more expensive in Beijing, Shanghai, Hong Kong, or Xinjiang.
00:07:22.420 Now, keep in mind, that's all money.
00:07:23.780 You may say, well, you got to figure out a way to make more money or go to move to a smaller city.
00:07:26.800 Totally get it.
00:07:27.340 But there's other kind of pressure there as well.
00:07:28.760 One of them being social pressure.
00:07:29.860 In China, because of the one-child policy that they had, there's 33.59 million more men than women in China in 2016.
00:07:37.200 There's the mother-in-law economy that they talk about, which means what?
00:07:40.160 Social pressure for men to go and ask someone's hand for marriage.
00:07:44.600 Hey, I'd like to marry your daughter.
00:07:46.360 They want you to own a home in China.
00:07:48.440 If you don't, and another man does, the family's willing to give their daughter up to a man with a home than one without a home.
00:07:54.060 That's a lot of pressure for men in China.
00:07:56.180 Look, there's a lot of pros to you growing fast, but they say there's two ways a company goes out of business.
00:08:00.060 It grows too slow.
00:08:00.960 It grows too fast.
00:08:01.900 When you grow too fast, if you all of a sudden don't have enough inventory or customers, there's a lot of problems there.
00:08:07.180 If you cannot deliver on your promises, things can break.
00:08:09.760 People are unhappy, so they leave.
00:08:11.260 China may have the fastest growing urbanization in the history of mankind.
00:08:16.580 When you look at this data, how they either took regular areas that were rural and they turned it into cities, or people left those areas to go into cities and migrate into cities.
00:08:25.880 Look what the numbers look like from 1980 till today.
00:08:28.500 1980, it was roughly 19.39% of the population that lived in urban areas.
00:08:35.420 To today, it's 65.22%.
00:08:38.200 That's almost 50% in 42 years.
00:08:40.440 But if you look at from 2000 till today, in 2000, they were at 36%.
00:08:45.760 Today, they're at 65.
00:08:46.900 When you grow that fast, things are going to break, and they're kind of going through it today.
00:08:50.720 So the urbanization is just one of the issues that they're having growing too fast.
00:08:53.660 But outside of that, one of the problems they're having right now is with deflation.
00:08:56.080 So you know how in the U.S., we're like, oh, my God, look what's going on with unemployment, or look what's going on with all this inflation that we have.
00:09:01.420 What do we do?
00:09:01.920 Raise the interest rates once, twice, three, four, five.
00:09:04.580 Oh, you know what?
00:09:05.300 Inflation is gradually coming down.
00:09:06.900 So the Fed has a way of cooling up the economy or heating up the economy if they choose to.
00:09:12.080 Like when we went to a 128-month expansion that we have in American economic expansion, we lowered the rates so low that everybody was just borrowing, borrowing, borrowing money.
00:09:19.800 So the economy in China is kind of cooling up.
00:09:21.880 They're kind of scared saying, what is going on?
00:09:23.180 People are no longer spending.
00:09:24.220 They're hanging out to cash because they're scared, and they're not putting in the stock market.
00:09:27.220 So the economy has to figure out a way to heat it up again in a fake way.
00:09:30.520 So how do you do it?
00:09:31.180 Make financing easier, lower rates.
00:09:33.560 Start giving 25-year loans to people above the age of 70, like assuming they're going to live up to 95.
00:09:38.400 Stuff that just makes no sense.
00:09:40.100 That's kind of what they're going through right now to get people buying again because, again, they got 65 to 90 million vacant properties.
00:09:47.900 Someone's got to buy these places.
00:09:49.280 So as if this isn't enough prompts, and by the way, if you don't know the history of China, China owns 100% of land.
00:09:54.000 Like in China, if you own a property, you may own the property, but you're leasing it from the government 20 to almost like 70 or 90 years.
00:10:02.080 You don't own the land in China.
00:10:03.740 The government owns the land in China.
00:10:05.400 Or maybe it's shared by the government, maybe with you, but they own 100% of the land in China.
00:10:10.080 Kind of weird, but that's what socialism and communism does.
00:10:12.400 However, the bigger the problem they're facing right now is the unemployment amongst the youth.
00:10:41.320 They have around 140 million folks between the ages of 15 to 24 years old.
00:10:46.080 And look what their unemployment looks like.
00:10:47.760 If you look at this chart from 2003 till now, it shows it goes from 9.61 to 13.16.
00:10:53.520 But if you continue, look how high that thing goes in China.
00:10:56.920 All the way up to 21% of kids and some young adults that cannot get a job right now.
00:11:03.560 21%, obviously, that's also very problematic because if you can't get your youth working, what are they going to be doing?
00:11:08.440 So, obviously, if you don't follow the story in China, you may be thinking, oh my God, China's crushing it.
00:11:12.960 They're going to be passing up America very soon, all this stuff.
00:11:14.920 We've all said it, right?
00:11:16.100 That we fell for that this is what's going to be taking place.
00:11:18.200 Again, there's two reasons why companies go out of business.
00:11:20.160 You either grow too fast, you grow too slow.
00:11:21.920 In this instance, they're growing way too fast and another country went through it.
00:11:25.420 So, the deflation cycle that they're going through causes a few things.
00:11:28.420 One, consumption goes down.
00:11:30.200 People don't want to spend money.
00:11:31.480 They want to save money.
00:11:32.200 Number two, businesses cut prices.
00:11:33.940 Consumers expect for prices to go down so they hold off with purchases.
00:11:38.540 Businesses lay off employees and obviously, all of this adds up.
00:11:42.280 And the other country that went through this years ago was Japan.
00:11:45.880 Look how fast Japan grew from 1969 to 1990.
00:11:51.520 When you see the numbers all the way to the left, look at that spike on how the Nikkei 225 stock market index grew that quickly.
00:11:59.220 And everybody was saying, Japan is the way to go.
00:12:01.960 Look at the cars they're making.
00:12:03.360 Look at all the stuff that they're doing.
00:12:04.880 We were studying them so quickly.
00:12:06.520 We were all studying what Japan was doing.
00:12:08.920 All of a sudden, look at the drop from the peak of 1990.
00:12:12.380 Today's 2023.
00:12:13.760 And they haven't even gotten close to the numbers they had in 1990.
00:12:17.960 That's 33 years ago.
00:12:20.640 China fears the same exact thing that happened to Japan is about to happen to them.
00:12:25.820 So, what is all this mess leading up to?
00:12:27.420 Is it like, oh, we're the only ones that know that this is taking place?
00:12:29.820 Let me just say what millionaires and billionaires are doing in China right now.
00:12:32.240 Here's an article from CNBC.
00:12:33.780 China to see the world's biggest millionaire exodus this year.
00:12:36.720 New study shows.
00:12:37.360 This is from a month ago, two months ago.
00:12:39.020 Data shows that 10,800 high net worth individuals migrated out of China in 2022.
00:12:44.000 And they're expecting another 13,500.
00:12:46.440 And outside of this article, a Reuters article just came out with this saying,
00:12:50.380 China's super rich population drops as tech crackdown, global factors hurt wealth.
00:12:55.300 Look at the numbers with China.
00:12:56.320 More than 400 people lost their billionaire status last year, most from China.
00:13:00.540 China lost 229 billionaires from Huron Global Rich List in 2023.
00:13:06.840 These are folks that are no longer making that kind of money and they're looking at elsewhere.
00:13:10.080 Where can I take my family?
00:13:11.140 And by the way, sometimes when you leave China, you can't take your money with you.
00:13:13.380 It's a very different kind of a climate to be there.
00:13:15.580 What's the moral of the story here?
00:13:16.840 When the government tries to fabricate the economy to either cool it off or control it,
00:13:21.940 they do it everywhere.
00:13:22.780 We do it in America.
00:13:24.000 Matter of fact, ours controls some of the economies around the world when we try to cool it up
00:13:28.120 or heat it up when we're dealing with interest rates.
00:13:30.700 So look, when you look at these numbers, the same can be said with a business.
00:13:33.060 When you're growing too fast, if you don't have enough products to fill in the buyers,
00:13:37.920 you're going to cause a lot of buyers to be sitting two, four, six, eight weeks to receive
00:13:41.620 the product.
00:13:42.100 They're not going to be happy.
00:13:42.900 It's kind of what's going on over there in China.
00:13:44.360 And then at the same time, when you look at China, their population is 1.44 billion,
00:13:48.000 but they have 658 million homes in China.
00:13:51.560 So if you say the average house has three people living there or four people living there,
00:13:56.580 why do you have 658 million homes when you only have 1.44?
00:14:00.340 It seems like a big number, but it's not a big, you have way too many empty places.
00:14:04.560 Why produce products and places to live when you don't have enough people to want to buy?
00:14:09.280 This is all fake economy.
00:14:10.800 This is the fake success that we experienced in America where a lot of people made a lot
00:14:14.400 of money.
00:14:14.740 They bought all the fancy stuff and then boom, it disappeared.
00:14:17.300 On a larger scale, China's going through it right now.
00:14:19.860 We're going to see how they handle this.
00:14:21.020 We're going to see what decisions they make politically.
00:14:22.840 Do they get involved?
00:14:23.560 Do they kind of stay out of it?
00:14:24.720 Knowing their philosophy, how it is, they feel they want to control everything.
00:14:28.040 They don't want anything to get out of their hands.
00:14:29.960 But does this also mean they're already in net negative migration?
00:14:33.180 Is that going to skyrocket with people leaving?
00:14:35.360 Who knows?
00:14:36.180 But the next 12, 24, 36 months, I would watch very closely to see what happens to China.
00:14:41.160 If you got value out of this video, give it a thumbs up and subscribe to the channel.
00:14:43.800 I got another video I want you to watch that has to do with China's catastrophic mistake
00:14:48.080 they made years ago.
00:14:49.320 When you see these numbers, it's absolutely insane.
00:14:51.620 If you've not seen it, click here to watch it.
00:14:53.580 Take care, everybody.
00:14:54.440 Bye-bye, bye-bye.