China's next great crisis is about to unfold!

It's all covered in today's China Truths. After the real estate crash, China's next crisis is ready to unfold. Whether China's current crisis is deflation or inflation, observers have different views. However, they all agree that China's economy is in a depression and becoming increasingly dangerous. Well-known professional investor Bells recently wrote that the real estate crisis is just the beginning. If it is not resolved, it will inevitably escalate into a financial crisis. Bells wrote that China's real estate bubble is the largest asset bubble in human history, once valued as high as 450 trillion yuan. Now that the bubble has burst and prices have collapsed, this is a major historical event that has changed the world. Any decision that ignores this context is dangerous. China's current economic difficulties seem to stem from weak consumption, but why is consumption low and demand sluggish? The reason is that residents have overdrawn their future income for decades and must now repay their debts, leaving no money for consumption. At present, the government shows no sense of crisis and has not taken timely action. Therefore, the crisis continues to worsen, and it will eventually lead to a sharp increase in bad bank debts, evolving into a financial crisis. Bells explained that if residents have no money, the supply side will go bankrupt, and real estate debt defaults will trigger a chain reaction. In the end, everyone will owe the bank. Banks' business models often involve more than 10 times leverage. If banks lose 10% of their assets, when multiplied by 10 times leverage, they would theoretically go bankrupt. In fact, just over 20 years ago, all Chinese banks were technically bankrupt and insolvent. Few remember this period of history, but it seems about to repeat itself. China's economic depression has led to social changes. On September 8, social media reported that a Meituan delivery rider in Shanghai held a sign on Nanjing East Road, calling for the establishment of a trade union. His sign read, The Times are calling for China's Martin Luther King, and, We want our own trade union, our own spokesperson for our interests, and an eight-hour workday. This is what the CCP fears most. Additionally, the economic depression has provided an opportunity for Xi Jinping's political enemies. The CCP is in a state of anxiety. Ming Zhu Zheng, an honorary professor of the Department of Political Science at National Taiwan University, analyzed on a live program on the 10th that Xi Jinping began preparing for war after consolidating power. He primarily did four things. First, he engaged in a trade war with the United States. Second, he took over Hong Kong, causing foreign capital to flee, leaving Hong Kong no longer able to generate wealth. Third, he imposed lockdowns for three years, pushing small and medium-sized enterprises to the brink. And fourth, he promoted the state's advancement while private enterprises retreated, all of which led to China's rapid economic decline. Professor Ming Zhu Zheng said that once the economy is depressed, society stagnates, and unemployment follows. When unemployment becomes severe, the crime rate will rise, society will become unstable, and political problems will emerge. The Communist Party has always been ruthless in political struggles. Recently, rumors have spread, all pointing in one direction, hoping for Xi Jinping's downfall. Anti-Xi forces are lurking behind these efforts. Xi Jinping is aware of those opposing him, which has led him to intensify his purges and become more suspicious. Professor Ming said that And the only remaining question is who will take the first step? If Xi Jinping wants to save himself, his only option may be to abandon communism. China's housing market crashes, owners strongly dissatisfied. On September 7, the poor construction quality of Phase 3 of Sunak Airport Chenyuan in Zhengzhou, Henan sparked strong dissatisfaction among homeowners. During the rights protection process, many homeowners were forcibly taken onto buses by the police, drawing significant public attention. At the same time, the Hangzhou housing market has once again become a focal point, with second-hand homes in many areas experiencing a break-in issue, meaning that the selling prices of second-hand homes are lower than the purchase prices of new ones. Some homeowners even reduced their prices by as much as 1 million yuan in less than a month, causing heated discussions in the market. According to the Qianjiang Evening News, this phenomenon is no longer new in Hangzhou. It has occurred in multiple districts such as Taoyuan, Genbei New Town and Future Science and Technology City. The Taoyuan district is a typical example of Hangzhou's new homes experiencing a break-in issue. Henan Hangyue Mansion was delivered in February this year, and after delivery some landlords sold their units at prices lower than new homes. The price limit for finely decorated units in Hangyue Mansion is 34,000 RMB per square meter, but the current average price is only 33,000 RMB per square meter, and the average transaction price is as low as 26,000 RMB per square meter, significantly lower than new home prices. According to the report, an owner in Beiyueqiao Mansion in Xiaoshan City recently sold his home at a loss of nearly 300,000 RMB. He explained that he was upgrading his home because the prices of both new and second-hand houses were falling. Many agents pointed out that in the current market environment, where supply exceeds demand, it is difficult for second-hand homes that have broken issue prices to stand out, and prices are still declining. Netizens expressed mixed opinions about this trend, noting that current housing prices have fallen to match new home prices, and questioned the possibility of a market recovery. Many netizens believe that buyers purchasing now might face further declines, leaving the future of the housing market uncertain. Guangzhou real estate company R&F Properties has overdue debts. Exceeding 27.6 billion yuan R&F Properties was listed in Hong Kong in 2005. Once known as one of the Five Tigers of South China real estate companies, R&F Properties has now fallen into financial difficulties. On September 11, Guangzhou R&F Properties Coordinated issued a statement disclosing the overdue status of some of its debts, revealing that approximately 27.6 billion yuan of interest-bearing debts were overdue. According to the announcement, as of June 30, 2024, R&F Properties had overdue interest-bearing debts, including an 8.454 billion yuan balance on bank loans, a 12.588 billion yuan balance on loans from non-bank financial institutions, and a 6.570 billion yuan balance on other interest-bearing debts. These overdue amounts are due to both principal and interest not being repaid by their respective due dates. R&F Properties also mentioned in the announcement that the company is actively communicating with creditors, addressing their concerns, formulating and implementing solutions, and continuously working to resolve the overdue debt situation. Just one month ago, R&F Properties issued a notice regarding overdue U.S. dollar bonds on the Hong Kong Stock Exchange. At that time, the announcement stated that three priority notes issued overseas by R&F Properties subsidiary Yaluico Ltd. were due for cash payment on July 11 of this year, with a 30-day grace period. However, due to the group's cash flow pressures, the interest has not yet been paid. The total interest owed amounts to 147 million U.S. dollars. China's economy is currently experiencing a severe recession, widespread unemployment, and numerous business bankruptcies. Many stores now sit deserted, with the once-vibrant scenes of shopping centers becoming a thing of the past. Following the collapse of Carefour, one of the top three supermarket chains under the Suning Group, stores belonging to the famous supermarket chain RT Mart and the renowned Japanese Isetan department store chain, which has been operating in Shanghai, announced its closure as well. Under the negative impact of the increasingly widespread economic recession in mainland China, some large supermarkets have closed stores in a desperate attempt to cut off their arms to survive, while others have imitated other supermarket brands to make drastic changes. More supermarkets have begun relocating to third- and fourth-tier cities. China's supermarkets are experiencing a store-closing wave. According to data released by the China Chain Store Association, the top 100 supermarkets in China in 2023 have seen declines in both sales and the number of stores compared with the previous year. Among them, Yonghui, RT Mart, and China Resources Vanguard have all experienced declines in both sales and the number of stores, while CP Lotus's sales have fallen by more than 20 percent. In 2023, nearly half of the listed supermarkets suffered losses. To reduce rent and labor costs, many supermarkets have closed stores at an alarming rate. According to lianshang.com, at least 131 supermarkets closed nationwide in the first half of 2024, including some industry giants. Public data compiled by Shangguan News shows that in the first half of the year, Yonghui Supermarket closed 38 stores, China Resources Vanguard closed 15 stores, Walmart China closed 17 stores, and CityShop announced that it would stop all store operations and completely withdraw from the market. In fact, China's supermarket industry began to decline several years ago. Data from the National Bureau of Statistics of the Communist Party of China shows that from 2017 to 2020, the number of supermarket stores dropped from a peak of 38,554 to 24,082, a decline of 37.5 percent. The reduction in large-chain supermarket stores was even more significant, dropping from 11,947 in 2012 to 5,340 in 2020, a decline of more than 55 percent. In recent years, supermarket companies have shifted their focus from first-tier cities to third-tier, fourth-tier, and even smaller county towns. Residential communities have replaced city centers, high-end neighborhoods, and business districts as the new battleground for supermarket companies. Customer flow declines, nearly 30,000 noodle shops in China, close in half a year. With the sharp decline in customer flow, nearly 30,000 noodle shops closed in the first half of this year. High-end noodle shops are no longer popular, which has become another microcosm of China's consumption involution. The so-called high-end noodle shops are those with a customer unit price of more than 40 yuan, RMB, the same below. These shops are concentrated in shopping malls and office areas, with urban white-collar workers as the core consumer group. According to Chichacha data, as of May this year, there were 31,000 registered noodle shops and 29,000 deregistered noodle shops. In comparison, the net growth in the first half of the year was much lower than in previous years, highlighting the increasing difficulties in the noodle shop business, particularly for high-priced establishments. The first-half financial report data released by Ajisen Ramen, known as the originator of high-end noodle shops in China, showed that Ajisen Ramen turned from profit to loss and expected a net loss of no more than 20 million yuan in the first half of this year. This news caused its stock price to plummet. A business owner who runs two noodle shops in Zujiahui, Shanghai, also admitted, It is not easy to run a noodle shop this year. Everyone's performance is tightening. We have done far more than last year, including the platform's free meals, free trials, zero yuan store visits, and even invited singers to perform. But the results are not as good as last year. Many friends who run noodle shops had plans to expand their stores, but no one has opened new locations this year. Beijing digs. Its own grave, China's local governments have doubled their revenue from fines compared with a decade ago in an effort to make up for losses in other revenue sources, according to a report released on Tuesday, August 27. However, this move is likely to provoke a strong public backlash. Government data shows that total fine revenue in 2022 was 368.7 billion yuan, about 51.8 billion U.S. dollars, up from 161.3 billion yuan in 2013. Although the 2023 figure has not yet been released, based on the share of fines and non-tax revenue since 2018, the 2023 figure is likely to be around 380 billion yuan. Panjian collected a total of 1.3 billion yuan in fines last year, an average of more than 1,000 yuan per resident, equivalent to 13 percent of the city's tax revenue. Enforcement has become tougher in the past few years, said a taxi driver. If you don't give way, you'll be charged 200 yuan. That's your day's income. Chinese media Kaijing found that between 2018 and 2021, 29 of the country's 247 major cities collected at least 10 percent of their tax revenue from fines. Some cities with small economies and low tax revenues are particularly dependent on these funds, such as Wuzhou and Hezhou in the Guangxi Zhuang Autonomous Region, where the proportions are 29.8 percent and 23.2 percent, respectively. Last fall, officials in Liangshanyi Autonomous Prefecture, Sichuan Province, began inspecting residents' homes to improve hygiene, charging fees of 3 yuan to 20 for violations such as unwashed dishes or unmade beds. In Luoyang, a man made 21 yuan selling vegetables with high pesticide content and was fined 110,000 yuan. Nikkei Asia noted that these tough measures come at a time when many local governments are facing severe financial difficulties. Revenue from the sale of state-owned land use rights to developers, an important source of income, has fallen sharply during China's real estate downturn, plunging more than 30 percent last year from its 2021 peak. At the same time, the central government is worried that more penalties will lead to greater public dissatisfaction and could spark public anger. Please share your thoughts in the comments section below. We will keep reporting on the COVID surge in China, so don't forget to subscribe to our channel and turn on the notification bell to get the latest videos. And thank you for tuning in.