The Red Swan
China's multi-trillion dollar market selloff, failing banks, slowing growth and falling population...
Bill Bonner, reckoning today from Baltimore, Maryland...
Comes this week some alarming news from the Middle Kingdom. That’s China we’re talking about. CNBC:
Hong Kong shares drop 3.7% and mainland China stocks tumble to near 5-year lows
The mainland Chinese CSI 300 fell to an almost five-year low after China’s fourth-quarter gross domestic product growth missed estimates. The index, which measures the largest companies listed in Shanghai and Shenzhen, fell 2.18% to close at 3,229.08.
Most of America’s problems are self-inflicted. Its irresponsible spending, its deficits, its debt, its fake money, its fake interest rates, its corrupt Congress and incompetent administrations…its border wars, culture wars, drug wars, war against Russia, war against Palestinians, etc.
Uglier by the Day
But there’s always more to the story. And one of the major threats to the global economy, right now, is a meltdown in China. Bloomberg this morning:
China’s $6.3 Trillion Stock Selloff Is Getting Uglier by the Day
…Tokyo has overtaken Shanghai as Asia’s biggest equity market, while India’s valuation premium over China has hit a record. Locally, a meltdown in Chinese shares is wreaking havoc on the nation’s asset management industry, pushing mutual fund closures to a five-year high.
And here’s The Wall Street Journal:
China’s Growth Slows to Three-Decade Low Excluding Pandemic
A festering property-market meltdown offsets much of the benefit of economy’s postpandemic recovery
China’s economic growth rate finished at one of the lowest levels in decades last year, underscoring the heavy toll that a property-sector collapse and weak consumer confidence have taken on the world’s second-largest economy despite the lifting of all Covid-19 restrictions.
Gross domestic product in China expanded 5.2% in the fourth quarter and for the full year in 2023, according to data released by the National Bureau of Statistics on Wednesday. The reading confirmed a number uttered by Premier Li Qiang a day earlier at the World Economic Forum in Davos, Switzerland—an unusual disclosure of a high-profile data point by a senior leader before its formal release.
The Wall Street Journal also reports that a record number of students graduated from Chinese universities this year. But some were so distressed by present economic conditions…and so exhausted by their intense studies…that they got their diplomas and simply laid down on the ground. Job offers are few and far between. So, rather than enter the workaday world, says the WSJ, they’ve decided to be ‘permanent, stay-at-home children.’
Empty Piggy Banks
Not only are they not making much money; they’re not making much whoopee either. The Associated Press is on the story:
China’s population falls for a 2nd straight year as births drop even after end of one-child policy
China’s population fell by 2 million people in 2023 in its second straight annual decrease, as births dropped for the seventh straight year and deaths jumped following the end of COVID-19 restrictions, the government said Wednesday.
Colleague Dan Denning adds:
China's banking sector has around $57 trillion in assets. The US, by comparison, has around $22 trillion. China's four biggest banks – Bank of China, ICBC, ABC, and CCB – own 70% of all those assets. Chinese banks account for 28% of ALL global banking assets.
And now China is growing at the slowest rate in three decades. This has knock on effects for Apple and Tesla and Nvidia – all of whom count on selling to China. Note that Microsoft has passed Apple recently as the largest stock by market capitalization.
We haven't spent much time (or I haven't, anyway) thinking about what all this means for 2024. We know in the last 30 years, China's entry into the World Trade Organization and its various five-year plans have spurred a huge bull market in commodities and reshaped the global balance of manufacturing power (deflating wages worldwide but keeping a lid on consumer prices and Treasury yields). And now?
China got old before it got rich! And now its population is shrinking at a record rate too. The communists stayed in power because they delivered jobs, houses, trains, airports and Western goods. What happens when that gig is up?
Taiwan?
More to come…on China’s troubles and what they mean to the US.
Regards,
Bill Bonner