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[0] China has experienced a meteoric rise over the past half century, with many projecting it will overtake the United States as the most influential global power in the coming decades.
[1] But some experts say its foundations are crumbling, and a China collapse is more likely.
[2] Thanks for waking up with us.
[3] It's Sunday, August 21st, and this is your Sunday edition of Morning Wire.
[4] Hey, everyone.
[5] Producer Colton here.
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[9] For this episode of Morning Wire, we speak to columnist and author of The Coming Collapse of China, Gordon Chang, about China's growing challenges and how a Chinese collapse could affect global markets.
[10] Gordon, thanks so much for coming on.
[11] Thank you so much, Georgia.
[12] Now, there's a lot of evidence showing that the Chinese economy may be contracting, but you've actually said that it's in freefall.
[13] What makes you say that?
[14] The property sector is the heart of the Chinese economy.
[15] It accounts for somewhere between 25 to 30 percent of gross domestic product.
[16] We know that the large property developers, including Evergrand Group, but many others, are defaulting on their bonded.
[17] and other obligations.
[18] And this has caused a number of anomalies.
[19] So, for instance, we see the mortgage boycott.
[20] In other words, homeowners in about 90 cities, maybe more at this moment, are not paying their mortgages.
[21] They have contracted to buy apartments.
[22] They got mortgages.
[23] They realize that those apartments will never be finished or might not be finished, so they are not paying their mortgages.
[24] Suppliers to the property developers, they're not paying mortgages.
[25] We see the bank runs.
[26] And the reason here is that we have sales of prices of new homes, plunging about 40 % in the first half of this year compared to the same period last year.
[27] That's an enormous fall.
[28] And no economy can sustain that, especially when property forms the core of it.
[29] So I think Chinese leaders right now are in a panic.
[30] They have tried some desperate measures.
[31] So far, those measures have not arrested the fall in sales or property prices, because now this has become a crisis of confidence.
[32] And how does all of this affect the world economy?
[33] This so far has not really affected the world economy too much, but we can see that it will.
[34] Part of it is because I think that countries around the world have been underestimating the problems in the Chinese economy, and they've been overestimating.
[35] And they've been overestimating the ability of Beijing to deal with them.
[36] At some point, this becomes a crisis.
[37] It takes the financial community and everybody else by surprise.
[38] And that, of course, is going to send shockwaves through equity markets.
[39] But Georgia, I think we have to understand that China is far less important to the global economy than most people think.
[40] You know, people will tell you, oh, you know, there's a lot of growth in China.
[41] China is an engine of global growth.
[42] Well, that's not really true because to be an engine of global growth, a country has to buy the goods and services of other countries to create growth elsewhere, to be that engine.
[43] And China, through criminal and predatory policies, has been taking growth from other countries.
[44] So if we wake up one morning and magically the Chinese economy just disappears, actually, I think it's going to be good for the United States and good for other countries.
[45] Now, there is the shock factor, but there wouldn't be if we understood the correct place of China in the global economy.
[46] Now, do you predict that in the near or moderate near -term future, there's going to be an actual collapse of the Chinese economy?
[47] I think that there will be.
[48] You know, Beijing has been able to postpone this problem for quite some time.
[49] To put this in context, China decided not to have a 2008 downturn, and they overstimulated their economy, and they created debt as no country had in history.
[50] So right now, China is starting to have its 2008 crisis.
[51] The difference between the rest of the world in 2008 and China in 2022 is that because China has deferred the crisis by creating this debt, it's made the situation bigger, and I think so big that there is no solution to it.
[52] So Beijing has been trying to solve the problem by, again, flooding the country with money.
[53] But the problem is that Chinese companies don't really want to borrow because they don't see a return.
[54] And that means that China's got to essentially go to the state companies and force them to build because they can direct them to do things which are not economic.
[55] But that ultimately will just postpone the problem and make it bigger by accumulating debt.
[56] So right now, I think China's regime pretty much has hit a dead end.
[57] Now, how is culture impacting the economy of China?
[58] For example, one phenomenon we've read about is the lying flat movement.
[59] How are they doing in terms of maximizing human capital?
[60] The line -flat movement is something that really worries the regime because it really means that younger workers who are supposed to be extremely productive are just opting out or doing the bare minimum.
[61] This so far, I don't think, has been a substantial effect on the economy, or at least it's hard to quantify it, but clearly long -term, this is a problem for China.
[62] there are a number of long -term issues that are working against the Chinese economy.
[63] And demography is one of them, change in attitudes as another.
[64] And these are just accumulating the issues that Beijing faces and isn't making it any easier.
[65] There's a whole sense of pessimism right now in China.
[66] Part of it is triggered by the COVID lockdowns, but also you get a sense that people feel that they've been overworked.
[67] They feel that there is no future in China.
[68] They are unhappy about some of the things the regime has been forcing them to do.
[69] So this is not a country that's headed in the right direction.
[70] The biggest long -term problem that China faces is demography.
[71] Beijing claims that 1 .41 billion people.
[72] But by the turn of this century, as we go into 2 ,200, China will have somewhere in the neighborhood of 550 million people, maybe 600 million people.
[73] In short, this is the steepest projected decline in population for any country in the absence of war or disease.
[74] And part of this is the one child policy that was ingrained and indoctrinated into the Chinese people.
[75] Now they have a three -child policy, but it's not really encouraging increased births.
[76] As a matter of fact, China is continuing to go the other way.
[77] But it's not only that.
[78] It's the concern over the Chinese economy.
[79] In every society, demography population births normally decline.
[80] The births decline because people don't feel optimistic.
[81] And that's part of China.
[82] But also, there's the problems of modernity.
[83] As China becomes more developed, we see this across the world.
[84] Couples have fewer children.
[85] The Communist Youth League, about a half year ago, published the results of a survey, which showed that 44 % of urban Chinese women have said they will never get married.
[86] And this means China's society is going to go through incredible changes that we just don't know what they will be like because no society has ever gone through this.
[87] Now, we do a lot of our manufacturing in China.
[88] We get a huge portion of our goods from there.
[89] If China experiences a collapse, how would that affect us here?
[90] I think the business and financial communities in the United States and around the world, I think, underestimate the problems in the Chinese economy, and at the same time, they overestimate the ability of Beijing to deal with those problems.
[91] More important, though, is China's belligerent external policies.
[92] They're causing tensions around the world, especially with the United States.
[93] And that means that long term, I think the oceans and the skies will not be reliably safe, and we will find that trade is disrupted.
[94] We Americans tend to focus on what we do is affecting relations with others, but with China it's more who we are.
[95] Because we are a democracy, because we have values, that form of government and those values have an inspirational impact on that.
[96] Chinese people.
[97] And the regime is deathly afraid of it.
[98] So Beijing views the United States as an existential threat, not because what we do, but because of who we are.
[99] And that means long -term trade between China and the rest of the world, I think, can't continue as it is.
[100] All right.
[101] Well, Gordon, thanks so much for coming on.
[102] Thank you so much, Georgia.
[103] That was Gordon Chang, columnist and author of The Coming Collapse of China.
[104] And this has been a Sunday edition of MorningWire.
[105] From all of us here at MorningWire, we hope you're enjoying the show.
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