The Chinese Dragon is unable to feed its babies

China’s job market is burning right now & once again Real Estate is the Real enemy.

Is it over for China?

China which is the global exporter of goods is facing economic instability.Their race of becoming the factory of the world has affected their own country!

First, we have to understand how the Chinese economy is structured or as Vembu sir said “structurally distorted”.

a) Their goal is to have a massive trade surplus which means they want to keep their exports high as compared to their imports. And to do so, they need to produce lots and lots of goods.

b) To satisfy the need of the entire world they have to maintain a robust manufacturing hub which they have achieved by keeping the wage rates lowThat attracts foreign companies to set up their factories here and export finished goods!

c) China intentionally keeps devaluing its currency as compared to US dollars. Now if China and US manufacture the same product you will prefer to buy from china because the value of their currency is less and you can buy more goods at the same price as compared to USD.

That’s why it is called structural distortion because it is hard to get back to the normal state again.

Yet again Real estate is at the centre of all the economic problems. (Sad 2008 financial crisis noises) The apartment prices in China are also increasing at a fast rate and this is breeding two big problems:

• Majority of people’s salary is going into mortgage payments and this has reduced the consumption.
• China might reach a negative population phase and one of the reason is that people are not able to earn enough to get the courage of starting a family and buying a house (Ghar nahi hoga to koi baap apni ladki nahi dega is true everywhere)

All of these points are affecting the consumption in China and that’s why they have to rely on increasing the exports if they want to keep the country on the rails!Indirectly they are dependent on other countries' consumption rates.

Okay now comes the interesting part:All the money which China has earned by exporting goods goes into the banking system in the form of reserves and this is also used to give out risky loans to the local govt and construction companies.

The Chinese have amazed the world with their futuristic infrastructure:they are making large stadiums, big highways and whatnot. But the problem here is many of these projects are not able to get good returns for their investors and it's become "unproductive infrastructure".

Now Xi JinPing is worried about all the loans which are issued towards such types of risky projects.So, he has planned to regulate the banks!This crackdown on the debt will stop many projects thus resulting in a major jobloss!

This is some kind of vicious circle and they are following the same debt trap strategy to take down other countries. Sri Lanka is the latest example!