A few random observations on the observations in the video…
1:47 – The graph of monthly sales growth was showing a steady decline from 2018 on a slope that looked like it would drop from 10% in 2018 to about 2% in 2024. There was a 20% drop in January of 2020 due to COVID lockdowns, a huge spike of 30% in January of 2021 when they relaxed restrictions and the economy “caught up” to pent up demand followed by a 10% drop for 1Q2022, a return to trend, another drop 4Q2022, another recovery spike 1Q2023, a return to trend, then another spike for 2H2023. Definitely a reflection of an overall “cooling” in the 10% growth of the prior decade or decades down to a more typical low single digit rate common in modern industrial economies. But with one caveat I’ll come back to…
2:37 – The graphs of growth in retail sales and industrial production are suspicious. First, while the narrative is categorizing these numbers as “cooling”, their overall trends on the graph’s x-axis from January 2021 thru December 2023 show slight INCREASES, albeit with enormous volatility month to month. More importantly, the slight upward TREND is involving very high absolute growth rates. Retail sales on an upward trend from 2% to 8%? Industrial production on an upward trend from roughly 17% to 20%? Those are INSANE growth rates, not even factoring in the quarterly swings of plus/minus 10%.
3:08 – The graph of urban unemployment from 2018 through 2023 shows obvious monthly swings due to COVID lockdowns in January 2020 and again in January 2022 but the y-axis dimension has to be factored in. The graph is scaled to only show a range of 4.8% to 6.2% unemployment. The “giant swings” are not really that big given the COVID lockdowns imposed over the period in several cities. Overall, the graph reflects a slight upward trend in unemployment from roughly 4.9% in 2018 to maybe 5.1% at the end of 2024. In the narrative though, it is stated the “youth unemployment rate” last reported as 1 in 5 (20%) is now unreported. I’m not sure what “youth” entails (under 18? under 16?) but the overall trend in unemployment itself doesn’t look that bad given obvious construction slowdowns. It also seems to belie the stereotype of Chinese goods being made by child labor if “youth unemployment” is 20%. At least one of these narratives – maybe both – are incorrect.
4:13 – The graph of home prices doesn’t look TOO bad at first until you realize that the percentage scale is MONTH OVER MONTH, not NOW OVER SAME MONTH LAST YEAR. Overall, the trend line from January 2018 to December 2023 shows the change in home prices falling from plus 0.5% month over month to minus 0.5%. Ignoring compounding effects with these small percentages, that means year over year prices are likely falling at a rate of 6% per year. That’s not great given how many billions China is sinking into construction as a means of artificially boosting the economy but for the same reason, the current rate of decline is surprising because the size of the actual construction bubble is so large.
6:00 – One can only look at these arial shots of city skylines with DOZENS of concrete, soul-less 40-storey apartment buildings with DOZENS more under construction and think of one era in history… Pruitt-Igoe. You KNOW these apartments and condos are not being fitted with the acoutrements of a typical western development project. China is building TENS OF MILLIONS of these units across the country. I suspect they will eventually learn the same lessons America did about urban housing at that density.
7:14 – The amount of unsold inventory of new housing units is about ten times available consumer demand (“demand” here probably reflecting a combination of both “those that want” and “those that can actually afford”). Someone posted another video analysis here about 2 months ago stating one reason the Chinese housing market got so far ahead of demand is that the government was forecasting a population growth rate of N% since 2000 and actual growth was only about 65% of that number. The root cause of this ginormous error could be a combination of factors:
- sheer folly of a Communist Party insisting on attempting to centrally plan a society and economy
- a fixation on FORECASTING such a critical number rather than boosting efforts to ACTUALLY MEASURE it
- a failure to REPORT accurate measurements which strayed from Communist Party forecasts to allow course corrections
- corruption from prior decisions to funnel state money into construction firms who have gained enough influence to continue the windfalls ahead of viable demand
In other words, China’s modernization efforts since 1990 are attempting to combine two forces – centrally planned Communism and (mostly) free market capitalism – which not only are rarely applied in tandem but may prove to be fundamentally explosive when operated in proximity over extended periods.
With only thirty years of experience in this hybrid model when the government was purposely flooding every segment of the economy with money the entire time, it’s no wonder China has yet to develop the “spidey-sense” that comes from natural business cycles and their manipulation by those in control of the markets. It seems China’s leaders lack any visceral sense of the abyss over which their economy (and society) hangs.
Welcome to the boomtown.