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Cathie Wood recently uncovered a movement that is about to destroy one of the world’s largest asset classes and drag down the global economy. Every country depends on China for their manufacturing of almost every product in existence. Cathie believes that we will see a sudden unexpected slowdown from serious risks in China. This video will go in-depth on what the frightening implications are for several events in China and how investors should react to this news.
Everyone knows that China’s government has been cracking down on their economy, but not many recognize the dangerous risks ahead. Over the past few decades, China has benefited tremendously from embracing a capitalistic system. The country’s GDP growth has been outstanding in the past, but this may not continue in the future. If China’s growth suddenly slows down, then the entire global economy will suffer. China’s recent crackdowns against capitalism may just cause exactly that. China has built up massive debt levels over the past decade, and one negative event could lead to a fatal crash. So why does this all matter? China controls a large portion of the world’s economy, but there is one asset in particular that the country has complete dominance over. That asset class is commodities. Commodities are the backbone of every manufactured item that you see — we’re talking about lumber, gold, iron, nickel, copper, and the list continues on. Out of all of the exporters of commodities in 2019, China exported 13.7% of the world’s total exports, which was worth over 2.4 trillion dollars. That amount might seem enormous, but that’s only one side of the equation. China is an even larger consumer of commodities, as China’s demand for commodities represents 15% of the entire global GDP. And when we’re talking about some commodities in particular, China represents over 50% of the total demand. To give you an instance of the scale of this demand, think about what would happen if 50% of the demand for steel suddenly halved in value. Such an event would be devastating for the entire world. China obviously plays a major role in everyone's lives, and Cathie believes that within the next 6 months, it will become apparent that China’s economy is rapidly slowing down. The CCP is playing with fire and devastating consequences are going to come as a result of that.
Given everything that we know, it is possible that China will go into a recession. One of the most serious risks in China is a collapse in real estate, most notably with Evergrande. Evergrande is one of the largest real estate development companies, as the company has over $300 billion worth of debt. Evergrande is struggling to pay the interest on its debt, which may seem like a special situation. Contrary to expectations, Evergrande is not the only real estate development company that’s in trouble. There are many other companies just like Evergrande that are failing to pay the interest on their debt. For instance, luxury apartment developer Fantasia Holdings recently failed to pay $315 million worth of interest a couple weeks ago. Modern Land, a Beijing based real estate developer, also reported that it needs extra time to pay a $250 million bond. Homebuilder Sinic Holdings also recently announced that the company is going to default on $250 million worth of bond payments. All of these real estate companies are failing to pay off their debt, and this may lead to a massive collapse in real estate. Cathie believes that this is a major risk to keep in mind not just for China, but also for the global economy.
The real estate market is a fundamental part of China’s economy and could create a major slowdown. The CCP definitely does not want a slowdown to happen and has been doing everything in its power to prevent such an occurrence. One of the actions that the CCP has been implementing recently is to increase productivity through regulations. The CCP’s most notable regulation that should theoretically boost productivity is a restriction on gaming, which may force citizens to be more productive.