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January 20, 2025 13 mins
We examine the challenges facing China's real estate sector and its broader economic implications, TikTok, US-China tech competition, & public anger in China

China Update provides listeners with the most up to date political, economic, and geostrategic analysis on China - so that you are on top of the world's number 2 economy.   These podcasts are based on hundreds of articles, think tank reports, government statements and other resources in English and Chinese every week. The views and analysis are all my own and I produce the podcasts. 
My Patreon: https://www.patreon.com/chinaupdate 
 
Disclaimer: China Update is not a financial advisory channel. While I take great care in researching everything discussed in these podcasts, nothing I say should be taken as investment advice. Please speak to a professional before making any investment decisions. #China
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Transcript

Episode Transcript

Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Happy Monday, everybody. Welcome to another episode of China Update,
where I provide you with the most up to dated political, economic,
and geostrategic analysis on the world's number two economy. My
name is Tony. Now, before we jump in, one quick
piece of housekeeping, I will be traveling back to New Zealand,
where I'm originally from in the coming days. As such,
it may be difficult to put up regular episodes. There

(00:22):
is a possibility that there will not be an episode
tomorrow Tuesday, and or will not be one on Wednesday.
I will endeavor to try and get both of these
episodes up as usual, but I'm just letting you know
in advance. If you do not see a video in
your feed tomorrow or on Wednesday, that is the reason.
By Thursday, I should be back in my hometown in
New Zealand and back to regular episodes. Now with that said,

(00:45):
let's jump in and we begin with the Chinese economy
and their recent paper China's Real Estate Challenge in the
International Monetary Funds, Finance and Development Magazine. Former Chief economist
and Research Department director at the IMF, Ragoff and the
IMF's Western Hemisphere Department Economist Yen Chiang Yang examine the

(01:05):
challenges facing China's real estate sector and its broader economic implications,
including the end of peak China, and, in a strong
departure from the usual cautious wording of the IMF and
its analysts, their conclusions paint a very concerning picture. Their
analysis traces the development of China's real estate market, argues
for the inevitability of a slowdown, and suggests that the

(01:27):
country is not immune to the risks associated with real
estate bubbles as many experts once believed. Now, as we
discuss this paper, many of the points made therein by
the authors will be very familiar to regular China day viewers. However,
what is significant is it's very rare to see these
points being made by senior IMF economists. Regoff and Young's

(01:47):
initial twenty twenty paper Peak China Housing predicted a difficult
transition from real estate growth to a more balanced economic model.
At that time, the thesis was considered out of consensus.
Many experts at that time were optimistic, projecting only a
gradual decline in China's property prices and little disruption to
the trend of growth. Of course, old viewers of China.

(02:10):
Update who were following this channel all the way back
in twenty twenty will know that these trends were very
obvious for those who cared to look. The consensus among
economists at that time was that China's housing market had
grown exponentially over the past three decades. Prices had risen
tenfolds into the nineteen nineties, although they still remained relatively
low compared to major global cities like New York and London. Furthermore,
it was argued China's remarkable growth trajectory fueled optimism, with

(02:33):
most economists forecasting a modest slowdown rather than a sap decline. However,
Ragoff and Jung's analysis present an argument for the vulnerability
of China's housing market. They noted that real estate bubbles
have historically played a central role in financial crises, not
just in the West, but across East Asia and Japan,
as pattern of credit fueled booms and subsequent busts is

(02:56):
well documented in financial history. The authors assert that while
many experts believed China could defy this pattern, the warning
signs were already evident years ago. One of the key
indicators of potential real estate distress was the rapid escalation
of home prices in China's top cities. By twenty eighteen,
home price to income ratios in Beating Shenjan and Shahai

(03:17):
were already double those of London and Singapore, and three
times those of New York and Tokyo. In tandem with
rising property prices, household debt and China surged, with the
household debt to GDP ratio tripling from less than twenty
percent in two thousand and eight to over sixty percent
by twenty twenty three. At the same time, inequality continued
to rise, with wealth concentrated among the owners of multiple homes,

(03:41):
a situation that exacerbated the affordability crisis for lower income families.
Ragof and Jung argued that China's real estate sector, which
accounted for a staggering twenty five percent plus the economy
in twenty twenty one, had already reached a point of
diminishing returns after two decades of rapid construction included a
massive stimulus driven boom following the two thousand and eight

(04:03):
global financial crisis. Many parts of China, especially in smaller cities,
saw a saturation of new housing per capita housing space
in China now exceeds that of any major European country,
despite its lower GDB per capita. The sharer scale of
this expansion means that future growth in the real estate
sector will not provide the same economic returns. Some scholars

(04:25):
have suggested that China could transition its construction sector to
focus on green initiatives buck Rayoff and Young, as many
other analysts have cautioned that the sheer size of the sector,
accounting for fifteen percent of total employment, makes such a
shift difficult, if not impossible. Similarly, while China could ramp
up its export activities, geopolitical tensions, particularly with the US

(04:47):
and Europe, post barriers to growth. This has also been
well documented on China Update. The authors also present evidence
that real estate investment is no longer yielding the same
economic benefits and cities with high levels of real life
state development. In fact, in many cities, especially in the
third tear group, the real estate market is already in decline.
As shown by their data, real estate prices in these cities,

(05:10):
which make up sixty percent of China's GDP, have been falling,
further highlighting the systemic risks of overbuilding. Whether or not
a full blow in financial crisis emerges. The authors argue
the slowdown in the real estate market will inevitably have
significant repercussions for China's economic growth, consumption, and government finances,
all areas we have been covering and following very closely

(05:32):
here on China Update. Indeed, they conclude it represents the
end of China's high growth story and the beginning of
something much slower and more turbulent. This will not be
news to regular China Update viewers, but it is significant
to see senior economists with bodies like the IMF, who
have historically been so cautious in their critiques of China's

(05:54):
economic story, to make these observations in such stark terms.
Next up, a quick TikTok update. As we've been following
this space closely this week, TikTok, the popular video sharing
app owned by Chinese company by Dunce, has announced efforts
to restore services in the United States after a temporary
suspension due to the new law that took effect on

(06:16):
January nineteenth yesterday. The law mandates that by duance diverst
TikTok to avoid a potential ban on app stores like
Apple and Google hosting the app. While TikTok's web version
remained accessible for a time, the mobile app was removed
from stores, preventing new downloads and updates. President elect Donald
Trump has stepped in, however, assuring companies involved in TikTok's

(06:40):
distribution that they would not face penalties under the new
law as long as the app remains operational. He further
proposed a solution involving a joint venture where the US
would hold a fifty percent stake, potentially allowing TikTok to
continue functioning in the United States. However, concerns over national
security persist, with US lawmakers fearing that the Chinese government
could act American's personal data through the app, as well

(07:02):
as use the app as a type of propaganda deployment instrument,
although TikTok denies such claims. The Trump's administration is considering
a deal that would limit Chinese control while preserving the
app's presence. Critics, including lawmakers like Tom Corton, argue that
there is no legal basis for an extension and warn
of the immense legal risks facing companies hosting TikTok. So

(07:25):
at this point it is still very much to be
continued next up, we have two more developments to cover,
but just quickly, I wanted to go through one further
piece of housekeeping. I wanted to discuss, especially for new
viewers viewers who have joined in the last month or so,
my views towards the use of titles and thumbnails. Older viewers,
older regular viewers will know that for the longest time,

(07:45):
I rarely pushed back and resisted use of more provocative
thumbnails and titles. I wanted the thumbnail and title to
be as grounded, as balanced, sober as the content that
we cover in the videos themselves. However, as I discussed
with the audience at the time late last year, I
said that we were going to experiment with a new

(08:07):
thumbnail company, new more provocative thumbnails and titles to get
a sense of what difference that would make to the
algorithm and the amount of people that the channel would
be shown to. The results were very swift. It showed
the use of these more provocative combinations of titles and
thumbnails resulted in a massive increase of new viewers. I'm

(08:28):
not talking about fifty percent or one hundred percent, something
closer to one thousand percent. It became clear that if
I wanted this channel to be shown to a new audience.
If I wanted it to grow, if I wanted people
to have the choice to watch the content that we
cover in these videos, I had to play by YouTube's
rules and use these more provocative thumbnails and titles. Unfortunately,

(08:48):
this is just simply the nature of the platform. Regular
viewers should know what to expect with these episodes, and
the thumbnails and titles are really more for the algorithm
to show the channel to new viewers. My promise, then, however,
as it is now, as it will always be, is
no matter what happens with the thumbnails and the titles,
the content within the videos themselves will always remain grounded

(09:09):
and sober. That will never change. Thank you everybody for
the support, for the appreciation, for the ongoing understanding. I
very much appreciate it. Now let's continue. Next up, the
ongoing US China technology war has reached a new level
of intensity, with the United States finalizing a rule targeting
connected vehicles. These are smart vehicles, issued by the Department

(09:32):
of Commerce last week. The regulation restricts the importation and
sales of connected passenger vehicles with links to China or Russia,
citing national security concerns. This will mostly affect Chinese vehicles,
as the Chinese are much more ahead of evs and
connected vehicles than the Russians. The move is a direct
response to the increasing reliance on foreign technologies embedded in

(09:53):
modern vehicles, which pose potential risks to Americans privacy and security.
Quoth cars today are not just steel on wheels their computers,
stated then U s Secretary of Commerce Gino Romando. Modern
vehicles are equipped with advanced technologies such as cameras, microphones, GPS,
and internal connectivity, making them vulnerable to manipulation by foreign adversaries.

(10:17):
She added, the new rules aim to prevent the infiltration
of these technologies from China and Russia, ensuring that critical
infrastructure and automotive supply chains are safeguarded. The rule will
go into effect gradually, with software related prohibitions beginning in
twenty twenty seven and hardware related restrictions by twenty thirty. Notably,
even vehicles manufactured in the United States but linked to

(10:39):
China or Russia will face these limitations. This move was
part of a broader strategy by the Biden administration to
curb China's growing influence in the technology sector, particularly in
industries like artificial intelligence and biotechnology, and will likely continue
under the Trump administration. It comes at a time of
heightened tensions, with China strongly opposing these restrictions. The Chinese
Ministry of Commerce they the u S actions as quote

(11:01):
economic cohercion in quote claaring that such measures will only
fuel China's push but technological self reliance. As the technology
war unfolds, both countries are reinforcing their positions, America by
protecting its technological infrastructure and China by doubling down on
innovation to break free from external dependencies. The outcome of

(11:21):
this escalating conflict could reshape global supply chains and the
future of connected technologies. Next up in Finding for Today,
the Chinese Ministry of Public Security has vowed to intensify
its efforts to rescue citizens believed to have been kidnapped
and trafficked into digital slavery in Miamma. This statement comes
in response to mounting public outrage within the China itself

(11:45):
over the disappearance of Chinese nationals, including high profile cases
such as actor Huang Singh's abduction. Many of these victims
were allered to Miama through deceptive job offers, only to
find themselves trapped in scam operations, often facing severe exploitation.
In a recent update, the MPs emphasized its commitment to
coordinate efforts with the Ministry of Foreign Affairs and Chinese

(12:07):
embassies abroad to ensure the safe return of those court
in the human trafficking web. The MPs noted that these
scammers have become more aggressive, partly due to a crackdown
on telecom fraud and increasing public awareness campaigns. Despite these efforts,
the scale of the crisis remains concerning with families of missing,
with families of the missing rather expressing frustration over the

(12:30):
slow response. Public's concern has been amplified by the disappearance
of Wang Sin, who was lured to a scam compound
near the Thai Miama border and later rescued by Thai authorities.
This incident has sparked wide spread fear among Chinese travelers,
especially with the upcoming Lunar New Year holiday. A significant
rise in flight cancelations to Thailand up by one hundred

(12:52):
and thirty five percent from the previous year, reflects the
growing apprehension. The Thai government, aware of the situation's impact
on tourism, has pledged to restore Chinese tourist's confidence by
addressing the rise in fake news and enhancing cooperation with
Chinese law enforcement. The Ministry Public Security's recent statement also
noted that it is captured over fifty three thousand Chinese

(13:15):
suspects linked to fraud and dismantled major crime syndicates in Mayama. However,
despite these victories, the challenge persists, and the tactics of
traffickers and scammers are growing more sophisticated. Families of those
still missing are actively calling for greater attention to their
loved ones, with thousands of desperate messages flooding social media platforms,

(13:37):
raising further questions about the ongoing crisis and the role
of transnational crime. Okay, that is today's episode of China Update.
Thank you so much everybody for watching. If all goes
to plan, I will see you all for another episode
tomorrow
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