 China, let's start with China, all right, China. China is in trouble, China is in trouble. The official GDP number came out for China. Now, just a little history here, recent history, very recent history. As recent as 2005, China was going at 11% a year. It actually grew faster in, you know, six, I think it went up to 14 points, something. It was growing double-digit rates, GDP growth. It had been growing double-digit rates for the previous two decades. It was considered an economic miracle. It was considered the new model for the world interpreted as, you know, what they call state capitalism, state run with some, status policies with some free markets. And it was, yeah, it was truly unbelievable. I think it was 14 in 2007. It was 12 and a half or close to 13 in 2006 and over 11 in 2005. And it looked like this was gonna go off forever, right? Forever. By 2009, 10, by 2019, that growth rate was cut in half. It was now 6% and since then, the growth rate has declined. And this year, actually it was below 6% in 2009. It was under 6%. And just recently, we heard that in the last quarter, the economy had slowed to just 0.4% growth. 0.4% growth. This is post COVID, this is post 2020. This is this year, the first quarter of this year. Now, given that these numbers are coming out of China and given that China has been known to smooth out, it's GDP numbers. It wouldn't surprise anybody, I don't think, that 0.4% GDP growth in the first quarter of this year actually represents a negative number. It wouldn't be surprised if China is probably in a recession and seeing its economy shrink. I think this is probably for the first time. I don't know, 2020, it did better, significantly better than the West because it shut down early and then opened everything up, but it wasn't doing great. And I think this is the first recession I can remember and during the great financial crisis, China still grew at like 9% GDP growth a year. So China is not doing well economically. It's doing quite badly and there are many reasons for this. I mean, chief among them is central planning doesn't work. Statism with a little bit of capitalism as the statism expands doesn't work. Ultimately, one of the other has to win and in China, what's been winning has been statism. But Noah Smith wrote an article that I thought brought out three areas that are the cause of this decline in economic activity, particularly more recently over the last two, three years in China, but particularly the decline under Xi. And so we're gonna talk about those, but we'll talk about more broadly about what's going on in China. China's economy, China's political leadership, China's society is in trouble right now. Xi is going up for the Communist Party, big shindig that they do every five years. It'll be, I think it's in November this year. And he is going to be appointed basically premier for life. So this will break the kind of term limits that are being present in the Chinese leadership over, you know, since the death of Mao Tse-Tung. He thought he would cruise into it. He thought this was gonna be easy to become a dictator for life of China. He'll get it. There's no doubt about the fact that he'll get it. He is too much in control of that party and he has basically got rid of his opposition. But it's gonna be a lot more difficult than he thinks. That is, there's gonna be some moments. There's gonna be some noise. There's gonna be some challenges. The Chinese Communist Party does not like to fail. They do not like to have social unrest. They don't like to have problems out there in their world. And it's happening. And I don't, I think he's gonna, I think it's not gonna be easy for him, although he will get elected I think, so elected. He will get chosen, whatever the hell that means. He will self-appoint himself to the title of premier for life in November. But let's review the three that Noah presents. Noah Smith has a sub-stack that deals with economics. He's kind of a left of center type, but he often writes about China and Japan and other countries very insightful economic analysis of them. Well, one thing that's clearly happened is the China in 2021, in early 2021, started cracking down on its tech sector. Now, the tech sector until then was for the most part left alone. For 20 years or so, the tech sector had grown up organically within China. I mean, I'm sure there were state intervention, there were subsidies, there were stuff going on, but generally it was left free. Many entrepreneurs became very, very wealthy. Some became billionaires. There was a real entrepreneur spirit. There was massive foreign investors. A lot of the leading venture capitalist funds in the United States started investing in startups in China. There was the beginnings of real innovation, not just copying. Indeed, in some respects, China is more advanced in the United States and things like payment systems integrated into social media. They are far more advanced in the US. Online shopping in many respects is easier there than it is even here. So for a long time, Chinese growth and Chinese success was driven by the fact that this massive growth area, this massive area of foreign investment was basically left alone. And we know what happens when you leave a market alone. You get an explosion in growth, entrepreneurship, and that's how you get 10, 14% GDP growth. It's because of the private sector and entrepreneurial success. So that happened in China. And the tech sector is a big driver of economic success in China over the last 20 years, particularly over the last 10. For example, China's been huge in games and gaming, maybe games that have not come to the West but games in China. What happened more recently is that China's decided that they want to more heavily regulate and manage the tech sector in a number of ways. One, they wanted to knock them down a few notches. They were getting a little arrogant. Some of the CEOs in the tech sector, some of the big shots were actually getting to the point where they were criticizing the Communist Chinese party or particular policies. That's not acceptable, you can do that. So they were chopped down a few notches, brought down a few notches. These millionaires were gaining too much power, too much popularity, too much just hype in the Chinese public. So as a consequence, again, Jack Ma was a good example. They wanted to take them down a few notches. And one way to take them down a few notches is maybe to put somebody like Jack Ma under house arrest or just to do things that would lower the market value of these firms, which would lower the wealth of the founders and the CEOs. They also wanted to regulate a variety of in the name of safety and consumer and all kinds of that protection. Just get more control over the sector. Just have more say. And one of the big pushes was the tech sector is evolving organically, which means that people are investing in companies and companies are employing people and products are produced based on supply and demand, based on market parameters. And as a consequence of this, for example, there were tens of thousands of gaming companies and hundreds of thousands of employees working for gaming companies. And China thought that that talent was misplaced, that talent was underutilized. And they preferred that that talent go into place like semiconductors, electric vehicles, aircraft manufacturing, maybe cyber security, things like that, things where the state has an interest that those be the sectors that are emphasized. So as a consequence, they worked to shut down about 14,000 video game companies and to try to drive talent out of a lot of the tech companies that had grown up organically within China and that had been successful. In an attempt again to highlight where the state wanted funds, resources, and talent to go into, this didn't go well. Chinese stock market collapsed, people lost gazillions of dollars, Chinese consumers were hurt, Chinese, many people lost their jobs. But more importantly, even the Chinese leadership got a sense that the entrepreneurial mindset that the Chinese had benefited from, the entrepreneurial ambition that was there was slowly seeping out, people were unmotivated. You know, in the past in China, people actually returned from the US to China because they felt like they could go into a field, they could build something, they could benefit the results. Yeah, there was a autocratic regime, authoritarian regime at the top, but that machine didn't really care about them, left them alone to do their thing. And so people went through about entrepreneurship in China and that was going away, people were now afraid. They'd be successful at business, the business would grow and the business would thrive, and then the Chinese government would step in and start regulating, start controlling it, start limiting it or destroy it because some bureaucrat didn't like it. Again, we're talking about authoritarianism. So those people withdrew, capital withdrew, foreign capital withdrew again for the same reason. If we can't trust that these companies can go public or can make a lot of money, we're not gonna invest here. Now this has all had a profound impact on the stock market and tech entrepreneurship and tech development to such an extent that in the last few months, the Chinese government has signaled that it is backtracking, which it almost never does, that it is backtracking, that maybe destroying one sector of the economy is not a great way to get support for another sector. So they started saying things like, that they're gonna reduce the regulations on IT on the tech sector, that they're actually gonna allow or support the tech sector's efforts to go public overseas and to lift overseas and generally send as many messages as they could through a variety of different channels that, hey, the crackdown's over, we got what we wanted, we're leaving you alone, go back to the way it was, we'll facilitate it going back to the way it was. Last year, one of the things they also did was discourage Chinese companies from listing in Western exchanges, so they're backtracking for that. It's not working so far at least. There's ongoing paranoia and paralysis and executives, there's lack of investment, there's lack of that entrepreneurial excitement and vigor that existed before. So it's not easy, this is why I think you're seeing Chinese economic growth stumble as bad as it has. So that's one reason, crackdown on tech, attempt to backtrack from that, which has been unsuccessful. The second thing that they did over the last couple of years, real estate, now for many, many, many years, really decades, China has been heavily subsidizing real estate growth, the building of buildings, it's allowed and facilitated the ability of real estate developers to get cheap loans and to super leverage themselves and to build, build, build, even in places where there was no demand to create these ghost cities that ultimately are filled, but not in an economic kind of justifiable way. By some estimates, 30% of the entire Chinese economy was basically real estate development. Well, this was not sustainable. And the Chinese government started to climb down. Remember, Chinese banks are basically run by the government. They are government banks. So the loans that are given to real estate developers by banks are not private loans. The loans that are in a sense subsidized by the government, well, they start cutting back on that and started cutting back on the building of buildings to the extent that a lot of building projects just stopped. You know, some skyscrapers, three quarters in have not been completed. A lot of residential buildings where people had supposedly bought apartments and now not being built. So we've got abandoned construction projects all over China. So, and you've got these developers going bankrupt, you've got these developers defaulting on debt, you've got developers begging for new lending and no new lending is coming. So you've got a real contraction of something that might be 30% of the Chinese economy. Again, they're trying to back paddle because the economy's not doing well. So they're trying to get the local governments to invest in real estate and to promote more real estate construction. They've slashed mortgage rates so that people can afford homes. Central bank is pushing banks now, it reversal from last year, to increase real estate lending in at least in big cities. But again, it's not particularly helping. Indeed, I don't know if you've been hearing this on the news, but a couple of things about this on the news recently, just in the last few days. It turns out that a lot of Chinese people have stopped paying their mortgage. So what they did was they would take out a mortgage before the apartment was completed. And they would use the mortgage to buy an apartment on spec. And now the construction has stopped, they're stopping to pay their mortgages. So millions of Chinese are basically not paying into the system, not paying the mortgage, which banks have expected, which developers have expected, which is only gonna work cause the real estate market to collapse even further. But the trust that Chinese citizens had in this whole system, where they in a sense will provide financing in advance before the building was built, that trust is collapsing. And therefore don't expect the Chinese to be funding Chinese citizens again, individuals to be funding these projects in the near future. Real estate defaults have gone up significantly. The other thing that's been happening, and this relates in a direct way, but in a couple of provinces in China, there have been some banks that have frozen the deposits of their customers. So you can't get your money out of the bank. And there have been significantly significant and large demonstrations in dozens of cities around China of bank customers demanding to get their money back. And again, the Chinese don't like demonstrations. They don't like unrest. The Chinese Communist Party, the whole motto is stability. Stability, peace above all things. They do not want people upset. And here they are again, here we are again, seeing that trust in the banking system, their trust in the real estate, collapsing common people in, common people in China, basically losing trust in the regime. And that is scary for the communist regime. Finally, so real estate we know is collapsing. We've got real estate and which is causing real problems with banks. We've got technology, the problems in technology. Finally, we've got the zero COVID policy in China. China has this crazy policy where they don't want COVID, zero. Like the rest of the world is pretty much figured out. It seems, we'll see, that we're just gonna have to live with COVID and we're all gonna get COVID. And it's at this point in its degree of deadliness, particularly given vaccines. COVID is just another flu. It's just another seasonal virus. And we're just gonna have to live with it. And that's basically what the West has recognized. So people have gone back to work, people are doing events, people are doing indoor dining, people are not wearing masks. World has gone back to basically no one, but not in China. In China, every time there's a sign of COVID, they shut a city down. They do these massive lockdowns, sometimes for weeks, on weeks, which shuts down production, shuts down demand. And again, makes it very, very difficult to have economic growth. We have vaccines that work. The Chinese do not have vaccines that work. Indeed, the Chinese are trying to develop an mRNA vaccine to try to get them out of zero COVID. They don't wanna import it from the West because then they'll acknowledge they failed to develop a good vaccine. So they are trying to develop their own mRNA vaccine. But it's a, you know, it's a complete and utter disaster. I mean, as, you know, it looks like there are six cities right now, at least about a week ago. Six cities and counties with widespread lockdowns, 30 million people under COVID curbs. I mean, you can't run an economy that way. We discovered that in America. We discovered that in the West. And China's, but China's going on and on and on and on. And while many people within China think that this is a stupid strategy and that we need to move away from it, every time somebody comes out of the woodwork saying, in the regime saying, well, we need to move away isn't this Xi doubles down on zero COVID? So Xi is basically made it his mission to have a world of, have a China of zero COVID. What you're seeing here, I think is just the beginning. I don't think China as an economy is over. I don't think it's finished. I think there's still a lot of dynamism there. And there's still an element of freedom and certainly in certain sectors within the Chinese economy. But what we're seeing is an adjustment to reality. That is central planning doesn't work. Maybe it can have some positive results in the very short run, but it doesn't work. Maybe it can artificially project a higher GDP or high economic growth, but long-term it doesn't work. And what happens to authoritarians? It's not that they over time become less and less authoritarian, but it's much more likely, much more likely to be, sorry, it's much more likely that authoritarians have an increase over time. The controls will increase over time. Regulations will increase over time. And the fact is globally, it doesn't matter what country you're in, controls, regulations, central planning, manipulating the economy, always backsfires. It is not pro-growth. So China's in trouble in the short run and China's in trouble in the long run. It might get better and then it'll get worse. But the whole attempt to combine some elements of freedom with authoritarian rule doesn't work. Doesn't work. Let's see. If you even look at Beijing, Shanghai, now that they've opened up after the lockdowns, consumption is down significantly in both places. People have not returned yet to normal. If you look at every single parameter from an economic perspective, China is struggling right now. Now granted, so is the West, so is the United States, and we haven't seen the worst of it. The whole world is in for quite a shock in terms of the economy. But China's not gonna be immune for that. China's probably gonna be worse, as bad if not worse than the rest of the world in terms of its economic prospects. China could be the most dynamic, exciting, largest economy in the world by far. But to actually do that, they would actually have to adopt freedom as a principle or at least be as free as the West is. If China was as free as the West is, yeah, there's no, I mean, they're incredibly hardworking, incredibly ambitious, incredibly devoted to self-improvement. The Chinese could be unbelievably wealthy. What's holding them back is what holds us back. It's the central planning, it's the controls, it's the regulations, it's all of that. All right, I mean, the Chinese wherever you go in the world have always done well economically. I mean, look at Singapore, when they're allowed to be free, look at Hong Kong, look at Malaysia and Indonesia where a significant amount of the wealth belongs to the Chinese minorities. They have an incredible work ethic, they're very entrepreneurial and they make money, they make money. We'll see what happens to China, but I am suspicious of their ability. I'm skeptical of their ability to continue to grow significantly. And to be a threat, as everybody imagines, a threat to the United States and other places. Thank you for listening or watching the Iran Book Show. If you'd like to support the show, we make it as easy as possible for you to trade with me. 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