China’s entire economy is about to collapse and instigate the largest global recession. Recent economic data coming out of China is exposing the country’s serious weakness. The Chinese Communist Party is trying to save the economy, but the truth has already come out. Cathie Wood manages almost $20 billion and has quickly recognized the pain that the world is about to face. Economists now see the US GDP growth outpacing China’s for the first time in almost 5 decades. So what’s really going on in China? This video will unravel China’s frightening situation and the shocking data pointing toward the country’s collapse.

After China began to open its economy in 1978, the country experienced unprecedented levels of growth. China’s GDP growth averaged at a rate of roughly 10% per year. This brought substantial prosperity to Chinese citizens. Over 800 million people escaped poverty. Healthcare advanced immensely, education became prioritized, and technological development accelerated. China’s unrivaled growth has led the country to become a manufacturing powerhouse respected by all economists. But as you all know, there’s no free lunch. The reason behind China’s unparalleled prosperity centered around its growing liabilities. When the economy thrived, those who took out loans experienced a quick appreciation in their net worth. This incentivized others to do the same, causing the economy to grow even faster. This caused even more Chinese citizens to take out loans. The cycle represented a positive feedback loop that caused China to experience exponential growth. This model has worked for many decades, but China’s debt has grown to a point that isn’t sustainable. China’s government debt to GDP ratio has increased to over 66%, which was built over the many decades of growth. The total public Chinese debt to GDP has also followed this trend to over 300%. This is almost 60% higher than the global rate of debt to GDP and is almost double the US non-financial corporate debt to GDP. Such a large amount of liabilities is obviously not sustainable and China’s recent issues are revealing this. China has been attempting to implement what’s known as the zero-COVID policy. The zero-COVID policy gives China’s government a simple target of zero COVID cases. The only way to get remotely close to this goal is to implement harsh regulations, which have severe economic implications. Banks and economists worldwide have continuously cut their GDP forecast for China due to strict COVID regulations. More importantly, China’s crackdown on overleveraged companies could instigate the opposite of the positive feedback loop we talked about earlier: a negative feedback loop. People defaulting on their loans causes the economy to slow down. That leads more people to default, which slows down the economy even more. President Xi has a simple goal of common prosperity and has been implementing a vast array of regulations for this campaign. One of these sectors is real estate. Real estate prices are the epitome of uncommon prosperity. Speculators have made a disproportionate amount of capital appreciation from rising property prices. President Xi is attempting to crack down on this by implementing new property taxes. Another policy that Xi has been implementing to crack down on within real estate is the three red lines policy. The three red lines put a ceiling on the amount of debt that property developers can have. All of these policies are causing housing prices to drop at extremely fast rates. The volume of new home sales is also experiencing a similar downturn. New home sales in early-May 2022 are down by 33% in 23 major Chinese cities. Real estate accounts for 25% of China’s GDP, so a 33% drop in home sales would result in a 9% drop in China’s GDP. China’s government recognizes the country’s impending disaster and has been doing anything in its power to prevent a further collapse. While the US Federal Reserve has been raising interest rates, China’s government has been cutting interest rates to save its economy. China’s loan prime rate for households and corporate loans is currently at 3.7%. This number is only expected to drop even more as time goes on. The country recently cut its 5-year loan prime rate by the largest amount since 2019. Most investors look at this crash as an isolated failure that won’t affect other countries. Contrary to this, China’s economic collapse could cause the entire world to enter a severe recession. The US Federal Reserve is raising interest rates and strengthening the purchasing power of the dollar. This directly weakens the value of the Chinese yuan in comparison to the US dollar. China’s weakening currency will lead its purchasing power to drop substantially while the Chinese economy is already crashing.
China accounted for over 18% of the global GDP in 2021, so a sudden crash in China’s economy would cause global weakness.