Thursday, September 7, 2023

China's Economy Is About to Collapse

By Andrew Zatlin (View Archive)

Editor's note: Regular Empire Financial Daily readers will recognize our friend and colleague Andrew Zatlin's name...

He spent two decades working in Silicon Valley, where he held senior roles at NEC and Cisco. Now, at our corporate affiliate Moneyball Economics, Andrew uses his background as a top-ranked economist combined with his proprietary hiring data to find profitable trading setups in the market.

Today, he explains why China's economy is on the brink of a meltdown...

Today, I want to talk to you about China...

You may think of this nation as an economic powerhouse, leaping from success to success. But in reality, it's a big bubbly economy... And that bubble is ready to burst.

Keep in mind that three main areas drive China's economy...

  1. Manufacturing and exports
  2. Banking, or what I refer to as "easy money"
  3. Real estate

You can think of each of these areas creating a three-legged stool, propping up China's economy. The thing is, each of these legs is cracking – meaning China's economy is on the brink of collapse. Let's take a closer look at each of these legs...

First, there's manufacturing...

This accounts for nearly 30% of China's gross domestic product ("GDP"). For reference, the rest of the world's manufacturing percentage averages at about 13%.

And once China makes all this stuff, the country needs to export it. That makes up another 17% of its GDP.

That's nearly half of China's economy tied up in making and selling things. And here's the problem...

China's exports recently dropped 14% year over year, for the third straight month of decline. And look at this:

As you can see, Hong Kong export levels over the past two years have been plummeting. The number of containers being exported today is half of what it was 10 years ago. This is bad news.

The second leg involves China's banking sector, a piece of this puzzle I'll sometimes refer to as 'easy money'...

You see, to aid in its manufacturing efforts, China went on a major infrastructure boom. It spent billions of dollars on things like utilities, roads, and railroads. In 2014, it spent $130 billion on a single railroad system.

The money to complete these projects was simply doled out. And now that manufacturing has fallen, the expected revenue intended to pay back this money is in question. In other words, $1 trillion worth of loans is about to come due, and China doesn't have the money to pay them off.

One thing to note about China's economic situation is that the country largely restricts capital outflows. As a result, Chinese money often has to be invested within the nation's borders.

And the sector that receives the bulk of this money represents the third led of this collapsing stool...

I'm referring to real estate.

Thanks in part to an historic drop in manufacturing, China's real estate market is suffering, too.

Real estate prices are down 15%. And recently, China's second-largest property developer, Evergrande Group, declared bankruptcy. This company owes $300 billion and can't pay it.

Moving forward, analysts project China's real estate market will fall another 15%. So this problem is far from over...

In fact, consider this: Any action taken by China's government or financial experts will take time to have an impact. That means this country's collapse is inevitable...

And as with any major event, we'll soon discover the winners and losers.

You see, when China's economy teeters, a lot of global companies are also in trouble.

This country represents the second-largest economy in the world. And if consumers there don't have the money to spend, companies that rely on Chinese consumers will see their bottom lines suffer.


Andrew Zatlin

Editor's note: Right now, Andrew is sounding the alarm on something that could cause the entire U.S. financial system to fall into utter chaos as soon as December 3.

As he explains, we could be on the verge of a "wealth shock" so vast that it will be felt inside every American home.

To get the steps Andrew says to take to protect your money, click here.