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.

  1. If you enjoyed this interview, please check out our other interview with Christopher Balding on our podcast China Unscripted!

  2. U.S.A is broke, more people became homeless, now a days U.S.A is not safe Bunch of criminal, drug addict, mass shooting is rampant.

  3. Christopher, nice to see you getting the hype speaking bad about china and CCP.
    Now you live and work in Hanoi, but Vietnam is not also communist and sharing some similar core issue ?
    Just for info, this channel is supported by fallengong and only focus talking dirt about China CCP so you will have to find another channel when you start repeatig same pattern talking shit about new bad guy vietnam later.
    Everybody make his money his own way.
    Talking what specific media want to listen with strong bias.
    It give you exposure then you can moneytize with book of financial advisory.
    I listen what you say and agree on some point but tell me, FED decreasing rate, debt increasing like crazy in US to make all looks good before 2020… between china and US what most corrupt ?
    The narrative is to make china responsible for the economic crisis to come in the west ?
    Because china failed to keep its 10% growth.
    As economist, have you seen an econony in history keeping this path with increasing labor cost and protectionis. ?

  4. China is poised to overtake US as the world largest retail market this year, and as the largest overall importer by 2021. Yeah thats what going broke means.

  5. India will reap the rewards if China weakens. Philippines will also rise and South Korea. A Recession is going to happen. It's part of the cycle.

  6. This one is actually a global problem … no point talking about the details until you address the elephant in the room: money is debt, if we stop borrowing there is no money, there isn't enough to pay off the debt… we need a different way to create the money we need to circulate in the economy.

    IS BACK..
    CAN IT BE,,,,
    MY GOD,,, HELP US…
    AND​ BYE….

  8. CHAPEL,,,,,, SHIT,,,,,,,
    LIKE,,,, ALWAYS…..
    BLOODY.,,,, CLICKS…. ,,,

  9. It is not China. EVERY COUNTRY HAS A CENTRAL BANK!!! "We the people are being played by we the people of every other country" no reason why someone time is worth less for doing the same job in another part of the world.

  10. 6 % economic growth and saying Chinese economy is very bad???? Absolutely stupid and rubbish.
    What about US economic growth from late 50s uptil today?
    2 to 4% only. How can you even compared this? From 2000 upto 2018, the Chinese annual growth was on the average of 9 – 10 %.

  11. Look at these two fxcktards openly masterbating in front of camera. It's so disgusting. The guy on the left has never been to China and he talked big. So funny. 6.2% is bad? Hahaha!

  12. Oslo freedom forum. The same organization who has relationship with NED and supports Hong Kong riots. Actually in BBC ‘s documentary about Oslo freedom forum we can find that Joshua Huang was also trained there.

  13. Sorry so I put my money in bonds in fear of economic downturn… Is he saying that those are more at risk of China crashes?

  14. For some people simply stating that not purchasing Chinese made products will hurt them, well, it kinda doesn't. China has, with the most incredible GeoPolitical maneuvering and manipulation has obtained a large Non-US independent trade with the rest of the world.

    China has factories in Vietnam, they could build products inside their own state, send over the almost completed products in factories outside of China and ship it to the US with the stamped markings of "Made in Vietnam, Cambodia… etc."

    China also has also purchased ports in Europe and Africa while at the same time isolating it's biggest trade threat as the Indians. Trump signing out of some trade agreements in Asia made those Asian states become more dependent on Chinese investment and loans and when the deed is done, the problem is too late to fix.

    If we want to hurt the Chinese economy, a large trade coalition to be dependent on each other AND excluding China from the rest of the world by GeoPolitically isolating them.

  15. China is loaning all this money out to build all these projects in low income countries that can’t afford to pay it back, so what happens when they don’t pay it back?

  16. One of the best explanations of the world economic situation I have heard to date. I have worked in China and would see buildings put up with no tenants or businesses all ready to move in. It was thought that if you built it people will come. Great during a boom, but the bust has arrived.

  17. I just bought a new couch, made here in Australia. The chinese version was 700$ cheaper, but I thought- #@!% 'em.
    It felt good.

  18. When the blind lead the blind they all fall in the ditch. China is not going broke. This is nothing but a propaganda film bunch of shit from somebody who’s never been there or lived there.

  19. The economy would have been in bad trouble if the main government had not been pumping it up this long and you can't do that forever. They should be at a breaking point as they give out bad loans to third world nations which can't pay it back, and also having so many losses at home making things worst. More foreign companies are moving their operations to other countries in the region which is waiting to get them there and that hurts the Chinese economy more.

  20. I’m an English teacher in China and I feel like this will be the last contract. The VPN is getting worse and they are making it a pain in the butt to stay here. It was a good run and I don’t hate the average Chinese person, but I do hate this government. The USA has its issues, no doubt. But I’d much rather live in a free country than be under the boot.

  21. We all know that China's economic collapse will affect the global economy, which is why we need to get out of China as much as possible before that happens. It's better to have an economic downturn for a while rather than lose your freedoms to Communism forever.

  22. Let it burn to the ground. China needs a reminder that they are not the center of the world, and you have to respect other countries besides your own.

  23. I’d like to see these companies move back to the us but some come back and the rest move to countries with a better relationship with us than that’s okay.

  24. No doubt to me that Trump's sanctions and tough stance on China are working. Hopefully it will destabilize the CCP. Trump 2020.

  25. No country should be economically dependent on the Maoist Dictator CCP. Chinese Maoism being rich and powerful is equally or even more dangerous than Islamic terrorism.

  26. Chinese have spend money on luxury goods and living standard has been increased so much they will not allow to turn back being poor! Communist will have mass riots on their hands if not a revolution.

  27. Hong Kong is the goose that lays the golden eggs for China and most of Asia. If the the Chinese Communist Party fully incorporates Hong Kong into their system they will kill that goose!

  28. If China is going broke, I do wonder what to call the country that owes them trillions of dollars. Some of the Americans commenting in here are hilarious. They may very well be going broke, as they participated in the idiotic coordinated global quantitative easing to prevent their #1 buyer (America) from going bust after the subprime mortgage crisis, but if they do go broke it will be well after America, which has literally tens of trillions in unfunded liabilities to its own citizens on top of an already incredible amount of public AND private debt.

  29. Dude, you should stick with comedy. I actually enjoy it. This episode sucks because you are not funny and the interviewee is a bore to death. The logic is even problematic. So when China economy is going down, it drags down everyone else. But where were you when its economy was going up?
    Stay with comedy, funny man.

  30. yes, wars will come, Ezekiel 38,39, Isaiah 17, Joel 2, Psalm 83, Zechariah 12 & 14, Matt 24:6, Rev 6:8,9:15. However God has provided a way for all to be saved through the atoning death of His Son on a cross for our sins, John 3:16. If you knew how much He loves you, and how much you are worth to Him, you would thank Him for His mercies, Psalm 136. The only way to be saved is to put your faith and trust in Jesus ( Yahshua HaMashiach) alone to save you, and accept His free gift of eternal life, Acts 16:30,31, Romans 3:23 -26, and 6, Ephesians 2:8,9, be blessed.

  31. When did the word area become sector.Get lost people will win remember its people run military not machines.lies are coming out

  32. This is really true, I know lots of people who live on mortgages. Household prices are absolutely insane now compared to before.

  33. China is shafting the world.
    They earn a lot but most of the money is held hostage by the party. Sliwing the chinese growth but more importantly for them, killing the outside economy.
    They do that because of their stupid ideology.
    Once everybody else has starved, they will start to buy extremely cheap stuff and rule the world.

  34. This is stupid and moronic only the Aussies and the American can make up such nonsense and people gobble it like pizza and soda

  35. Gorden G. Chang. It resonates, does it not? 2001 "the coming collapse of China", so, he predicted, WRONGLY!

  36. I just hate commies, even the one's in my country.. They always do propaganda, bitch abt everything don't work, protest and organise useless gathering, and have no clue on solving problems.. Simple words – Maggots that live of a country and make it hollow from inside.. Fuck commies

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