The Truth About China’s Economic Slowdown (Revealed in the Data)

Something's off with the Chinese economy and the signs are starting to show. For one, Chinese banks are issuing way less loans. For two, inflation has turned negative, meaning prices are falling instead of rising. And for three, factory activity has been falling for months. And the reason why you might want to pay attention is because China is the world's second largest economy. They're the world's largest exporter, they're one of the world's largest buyers of oil and metals and technology, and they're a big part of the global supply chain. And so if you've been wondering what's going on with the Chinese economy and how could that impact us here in the United States, you're in the right place because I'm going to break it all down here. And let's start by just painting a picture of what's going on in the economy right now because there are six things that are happening that you might want to pay attention to. The first thing is that Chinese banks are issuing way less loans, which means people are buying less houses, businesses are borrowing less money, people are buying less cars, which might not be a good sign. Number two is factory prices are falling. The Chinese PPI, producer price index, has fallen more than 3% over the last year, which means factories are charging less money for their stuff because factories are not getting as many orders. From an economic perspective, if businesses have to charge less money to make sales, that means that the economy is not doing good. Problem number three is consumer prices are also falling. We just talked about how the producer prices, meaning factory prices, are falling, but also consumer prices, meaning inflation, is also falling, meaning the prices of things are going down. And this has been happening month after month for the last four months. And this might sound like a good thing at first if the prices of things are falling, but if we look at this from an economic perspective, not from a consumer perspective, from an economic perspective, if businesses have to sell their stuff for a lower price to get people to buy things, that's not good news for the economy. Now, sure, it means your dollar or your currency can stretch further, but if people don't have the money to spend, which is causing businesses to cut prices, that's not a good thing. Point number four is unemployment is There was a new report that came out and said youth unemployment just hit an 11-month low, but that 11-month low is almost 15%, which means almost 15% of young people between 18 to 24 years of age are unemployed. Problem number five is home prices keep falling. Real estate is one of the largest industries in China, and home prices have been falling. We saw home prices fall by around three and a half percent in May, and we don't really see a bottom in sight yet. And problem number six is factories in China are slowing down. Now, we know that factories producing products is one of the biggest industries for China, and manufacturing in China has been in contraction territory for the last three months, which means that the entire manufacturing industry in China has been getting hurt, and people are not making as much money. Now that you understand some of the problems in the Chinese economy, let's talk about what's causing these problems. Now, we've been covering all of this in Market Briefs. Again, Market Briefs is a free daily report that my team at Briefs Media publishes, where we break down what's happening in things like the economy, housing, stocks, crypto, and global markets into a fun, witty, and easy-to-read newsletter. We have hundreds of thousands of investors that are reading Market Briefs every morning, and when you join Market Briefs as a complimentary bonus, you'll also get my investing masterclass for free, where I break down how you can get started as an investor and find hidden investment opportunities before everybody else. So if you want to get Market Briefs plus my investing masterclass all for free, all you have to do is click the link down in the description below. Now, the most obvious reason for part of the slowdown has to do with tariffs and the potential trade deal with the United States, which now it seems that we have a tentative trade deal between the United States and China. So let's wait and see what actually happens with that, but we know that that had an impact on factories and manufacturing. But the problem didn't start with tariffs. The Chinese economy has been facing troubles for years now, and let's take a look at what's going on in the real estate market, because home prices, real estate prices in China have been falling for years. This became much more apparent when Evergrande, which is one of China's largest developers, collapsed. Now, the Chinese economy is kind of unique because real estate makes up such a large piece of the entire GDP of China, and we don't know exactly what's going on with the housing numbers and real estate numbers in China because, well, we don't always get access to the data, but according to some analysts, it looks like housing prices are down around 20% in China, and Goldman Sachs says the housing prices could fall by another 10%. So it's almost as if China is facing their own version of the 2008 financial crisis, just in their own world. If we go beyond tariffs and real estate, the third problem has to do with real estate developers. A few years ago, China started cracking down on how real estate developers were borrowing money against their assets, and that kind of spurred the downturn of many developers in China. I already talked about how Evergrande went bankrupt. Well, that's a big deal because many banks were holding on to billions of dollars worth of their loans, which is a cost that somebody has to absorb, and that is painful. But Evergrande wasn't the only developer to go bankrupt. Another big developer called Country Garden also defaulted on billions of dollars of debt, which means banks are absorbing those costs. Now, remember, real estate is one of the largest industries in China, and real estate developers are struggling, which is forcing them to lay people off and cut costs, which is hurting the economy even more. The fourth problem is people aren't spending money. Now, this is going to sound very counterintuitive, but people in China are saving more money than ever, and household savings in China hit a record 19 trillion yuan in 2023. The reason why that matters, again, is because our economic system in the United States and China and everywhere between runs on spending. If people are not spending money, businesses are not making money, and people are scared to spend because they're concerned about the recession. They're concerned about the future of the economy, so they want to protect themselves, which is a good thing for people, but it's bad for the economic system. And that's why we're seeing unemployment be hurt, we're seeing growth get hurt, and a lot of concerns in the Chinese economy. And then, of course, we have the icing on the cake, which is the aging population in China. By the year 2050, nearly 40% of the Chinese population is expected to be over retirement age. That means less younger workers, less productivity, less creativity, and more work is going to be given to just taking care of the elder population, which is not really good for the broader economy and growth in the economy. And part of that has to do with the previous one-child laws that China had, and now they're trying to reverse that, but fixing it is not going to happen quickly. And this is where China is trying to fix their economic problems. For one, the central bank recently started cutting interest rates again because in May, the central bank cut interest rates for the first time since last October, and the Chinese central bank offered more short-term liquidity support to encourage banks to keep lending more money. So essentially, they're trying to create more inflation to make people more comfortable spending money. But that's not all. The government has been funding huge stimulus programs to get the economy moving with things like railroads and power grids and car subsidies and appliances and technology. So the Chinese government and the central bank is cutting interest rates and printing money as a way to try to create jobs forcefully out of the government, as a way to try to entice people to borrow money, as a way to try to entice people to spend money to get the economy moving again. Now, sometimes it can be hard to really understand what's going on in the Chinese economy because China works a little bit different than the United States. If you remember, back during COVID times, China had a zero COVID policy where they shut down the entire country or many cities for long periods of time to ensure that there were zero cases of COVID. I mean, China didn't fully open back up until 2023, which is years after many other countries. But China also stimulated their economy very differently during that pandemic time compared to the United States. For example, if we take a look at the interest rates in China, their version of the federal funds rate, what you'll see is that in 2019, it was around 4.15%. Then when the pandemic hit, they cut interest rates slightly to 3.85%. Nothing super drastic. And then they brought it down to 3.65% in 2022. So we didn't see big interest rate cuts during the pandemic time versus in the United States. We saw interest rates get cut all the way down to zero with a whole bunch of stimulus programs passed. China didn't do that, but then they continued trying to stimulate the economy through 2022 because then they cut interest rates in 2024 down to 3.45%. And then in 2025, China cut interest rates down to 3.0% because they're trying to continue stimulate their economy today. So they had a very different response to the pandemic and they're doing things very differently today than the United States. And this is where people and businesses in China haven't been trusting the stimulus, which is why we've been seeing a slowdown in spending versus many other countries saw a full rebound. Now, the reason why you want to pay attention to this goes beyond just being a smarter investor. I mean, China is one of the world's largest economies. They're also one of the world's largest buyers of things like oil and iron ore and coal, not to mention that China is also the world's manufacturing hub. So the reason why this matters is because China's slowdown can impact other global economies. And you have to imagine that the United States use that weakness that China is feeling as kind of a negotiation point to push them to make a more favorable trade deal with the United States. But even beyond that, the reason why many investors want to pay attention to this, because we live in a global economy, and if you are an investor, well, you can find opportunities in countries outside of the United States and invest in those countries without actually leaving the comfort of your home. Take a look. Now, listen, I'm not a financial advisor. I'm just a random guy on YouTube. Investing has risks. You are never guaranteed to make money when you invest. In fact, you will lose money at some point. So make sure you always do your own due diligence and never blindly trust a random guy on YouTube. But if you are interested in finding opportunities, you don't have to just look in the United States. And I'm not telling you to go out and invest in China. But for some of you, you might say, well, I believe in the long term growth of the Chinese economy. And if I see their economy getting hurt, that could create a potential buying opportunity. Now, you can go out and look for specific companies in China to invest in, or you can invest in funds that give you exposure to the broader Chinese economy. And I'm going to give you a few. Again, I'm not telling you what to invest in. I'm just giving you a few examples. These are a few ETFs that you can buy in the United States that give you exposure to the Chinese economy. One is KWEB. This stands for the Crane Shares Chinese Internet ETF. Then we have MCHI. This is an ETF created by iShares that gives you exposure to the broad Chinese economy. Then we have FXI. This is another ETF created by iShares that gives you exposure to large cap companies in the Chinese economy. Now, of course, anytime you invest in a foreign country, you're going to be subject to more risks because we don't really know what's happening in the foreign countries. For example, China says that they're going to see 5% economic growth in 2025. But if you look at the IMF, the International Monetary Fund, they say, no, China's only going to grow around 4%. But Moody's says, no, that's not good enough either because China's only going to grow by 3.8%. But again, the reason why you want to pay attention is because we live in a global economy. One country hurting can impact other countries and it can impact other companies, which you may or may not be invested in. And this can, again, create opportunities for you. Yes, there is risk. For example, we don't know exactly what's going to happen with the trade deals between China and the United States. Some days we have a great deal. Some days, well, that deal doesn't look very good. We don't exactly know what's going to happen in 30, 60, or 90 days. But again, it can create opportunity for the financially savvy investors. But there's going to be a rocky road ahead. We don't know what type of stimulus the Chinese government is going to be offering to the country, to companies, to its citizens. We don't know exactly what's going to happen to the real estate market. We don't know exactly what's going to happen with the trade deals. And we don't know exactly what's going to happen to the Chinese markets and the Chinese stocks. But if you're an investor, it might be something you want to keep an eye on. Again, if you want an easy way to stay up to date, you can just join Market Briefs, which is my free financial newsletter for investors. And you'll get my investing master class as a bonus just for joining. And I have that link for you down in the description. If you make $80,000 a year from your job, you need to make $80,000 a year from your investment income to be able to quit your job and live your life without changing anything you're doing. With your job, you have to go into work every single day to keep getting paid with your investments. Once you put your money to work, it'll keep paying.