1 00:00:00,120 --> 00:00:04,280 Speaker 1: This is the story of how China actually orchestrated its 2 00:00:04,400 --> 00:00:08,600 Speaker 1: rise to economic dominance, and why the consequences of that 3 00:00:08,760 --> 00:00:13,080 Speaker 1: orchestrated growth are so costly that China may now be 4 00:00:13,160 --> 00:00:17,919 Speaker 1: facing imminent collapse. Now it's obvious the rise of China 5 00:00:18,000 --> 00:00:22,400 Speaker 1: over the last forty years has been nothing but epic, spectacular, 6 00:00:22,480 --> 00:00:27,280 Speaker 1: and unprecedented. Just forty years ago, it was an agrarian nation. 7 00:00:27,440 --> 00:00:31,360 Speaker 1: The people were all just farmers, subsistence level farmers at that. 8 00:00:31,520 --> 00:00:36,600 Speaker 1: Even in nineteen ninety, ninety nine percent of the population 9 00:00:37,000 --> 00:00:40,400 Speaker 1: still lived in poverty, which is measured as under five 10 00:00:40,440 --> 00:00:43,400 Speaker 1: dollars and fifty cents per day, and forty years ago 11 00:00:43,520 --> 00:00:46,639 Speaker 1: their total GDP was only one hundred and ninety one 12 00:00:46,920 --> 00:00:50,319 Speaker 1: billion dollars. Now, to put that into perspective, that's the 13 00:00:50,360 --> 00:00:53,280 Speaker 1: size of a regular company in the US stock market. 14 00:00:53,320 --> 00:00:57,720 Speaker 1: T Mobile, Comcast, Cisco, Shell all have a market cap 15 00:00:57,760 --> 00:01:01,120 Speaker 1: of around one hundred ninety billion dollars. But today, just 16 00:01:01,440 --> 00:01:05,360 Speaker 1: forty years later, over seventy five percent of their entire 17 00:01:05,440 --> 00:01:08,399 Speaker 1: population has been lifted out of poverty. That's like a 18 00:01:08,480 --> 00:01:14,200 Speaker 1: billion people. They have six point two million millionaires in China, 19 00:01:14,319 --> 00:01:18,680 Speaker 1: which ranks second just after the United States. Their total 20 00:01:18,720 --> 00:01:22,400 Speaker 1: GDP for the country is now eighteen trillion, which makes 21 00:01:22,480 --> 00:01:26,640 Speaker 1: up seventeen percent of the entire global GDP and is 22 00:01:26,760 --> 00:01:29,839 Speaker 1: second only to the United States, which is at twenty 23 00:01:29,920 --> 00:01:32,959 Speaker 1: seven trillion. So how did they achieve this growth so 24 00:01:33,200 --> 00:01:36,920 Speaker 1: fast and from such a small start? Well, for starters, 25 00:01:37,160 --> 00:01:39,720 Speaker 1: when Mao was in charge of China, he killed like 26 00:01:39,840 --> 00:01:44,240 Speaker 1: eighty million people through starvation and bad decisions. So at 27 00:01:44,240 --> 00:01:46,360 Speaker 1: some level it's like you can only really go up 28 00:01:46,360 --> 00:01:49,360 Speaker 1: from there, and that's exactly what they did, because after Mao, 29 00:01:49,560 --> 00:01:53,200 Speaker 1: China tried a little bit of freedom. Now, considering how free, 30 00:01:53,320 --> 00:01:55,360 Speaker 1: or i should say, how not free China is, they're 31 00:01:55,400 --> 00:01:59,400 Speaker 1: an extreme outlier globally in terms of their economic growth 32 00:01:59,680 --> 00:02:02,640 Speaker 1: compared to their freedom score. On this chart, countries with 33 00:02:02,680 --> 00:02:06,360 Speaker 1: a blue dot are generally rich countries, the green dots 34 00:02:06,400 --> 00:02:08,960 Speaker 1: are upper middle, orange dots are lower middle, and the 35 00:02:09,000 --> 00:02:12,640 Speaker 1: red dots are the poorest countries. Generally, the richest countries 36 00:02:12,720 --> 00:02:17,400 Speaker 1: are also the most free. China being the extreme outlier, 37 00:02:17,680 --> 00:02:20,720 Speaker 1: being an extremely rich country compared to the rest of 38 00:02:20,760 --> 00:02:25,240 Speaker 1: the world but having almost zero freedom now without having 39 00:02:25,280 --> 00:02:28,519 Speaker 1: an economy that is able to establish growth through innovation 40 00:02:28,680 --> 00:02:31,400 Speaker 1: and freedom from the bottom up. The only way to 41 00:02:31,520 --> 00:02:35,320 Speaker 1: orchestrate economic growth is through two different methods. Number one, 42 00:02:35,760 --> 00:02:41,040 Speaker 1: top down economic control and number two debt, And boy 43 00:02:41,800 --> 00:02:43,560 Speaker 1: do they have a lot of debt. As recently as 44 00:02:43,600 --> 00:02:47,760 Speaker 1: twenty twelve, the national debt compared to GDP in China 45 00:02:47,880 --> 00:02:51,800 Speaker 1: was only thirty four percent, but that has absolutely exploded 46 00:02:51,840 --> 00:02:55,160 Speaker 1: recently as they've borrowed more and more to continue their 47 00:02:55,480 --> 00:02:58,600 Speaker 1: high GDP growth rates, to the point where their national 48 00:02:58,639 --> 00:03:01,800 Speaker 1: debt to GDP is now eighty three percent. When you 49 00:03:01,840 --> 00:03:04,680 Speaker 1: take into account other debt other than just the national debt, 50 00:03:04,720 --> 00:03:07,320 Speaker 1: they currently have a total debt to GDP ratio of 51 00:03:07,360 --> 00:03:12,720 Speaker 1: a mind crushing two hundred eighty seven percent. Now, in reality, 52 00:03:12,840 --> 00:03:16,639 Speaker 1: the actual debt that China has is unknowable and much 53 00:03:16,800 --> 00:03:20,880 Speaker 1: larger than that, because the local governments have legal limits 54 00:03:20,919 --> 00:03:23,240 Speaker 1: on how much debt they can have, and so there's 55 00:03:23,280 --> 00:03:25,760 Speaker 1: a loophole where they get around this by establishing things 56 00:03:25,800 --> 00:03:29,760 Speaker 1: called local government financing vehicles, which are just separate entities 57 00:03:29,960 --> 00:03:32,800 Speaker 1: that carry all the extra debt instead of the local governments. 58 00:03:32,919 --> 00:03:36,080 Speaker 1: And the thing about debt is that eventually it's got 59 00:03:36,120 --> 00:03:39,160 Speaker 1: to be repaid, and up until recently this didn't seem 60 00:03:39,200 --> 00:03:42,560 Speaker 1: to be a problem because the top down, centrally planned 61 00:03:42,600 --> 00:03:46,080 Speaker 1: way they controlled the economy seemed to be orchestrating enough 62 00:03:46,160 --> 00:03:49,040 Speaker 1: growth to pay for that debt. But as the Austrians 63 00:03:49,080 --> 00:03:52,920 Speaker 1: always point out, the problem of economic calculation is one 64 00:03:52,920 --> 00:03:56,040 Speaker 1: that cannot be solved at the central level. It is 65 00:03:56,040 --> 00:03:59,240 Speaker 1: a problem that can only be solved decentralized by each 66 00:03:59,320 --> 00:04:02,280 Speaker 1: individual in the system. Here's a great example of this. 67 00:04:02,600 --> 00:04:05,640 Speaker 1: A while ago, real estate investing in China was heavily 68 00:04:05,720 --> 00:04:10,560 Speaker 1: incentivized because it worked, and without freedom, you didn't have 69 00:04:10,840 --> 00:04:13,720 Speaker 1: other money, other capital flowing into your country, so you 70 00:04:13,720 --> 00:04:16,880 Speaker 1: don't have sophisticated financial markets. And so in China, the 71 00:04:16,920 --> 00:04:19,280 Speaker 1: average person didn't have access to a four oh one 72 00:04:19,360 --> 00:04:21,720 Speaker 1: K or a brokerage account, so they just bought real 73 00:04:21,839 --> 00:04:24,520 Speaker 1: estate instead. For a while, this caused a boom, and 74 00:04:24,560 --> 00:04:27,320 Speaker 1: then because of the malinvestment caused by the top down 75 00:04:27,320 --> 00:04:30,080 Speaker 1: planning and all of the debt, suddenly you have a bubble. 76 00:04:30,279 --> 00:04:32,440 Speaker 1: Over the last couple of years, China's tried to crack 77 00:04:32,520 --> 00:04:34,440 Speaker 1: down on that, but when you end up popping a 78 00:04:34,440 --> 00:04:37,800 Speaker 1: bubble that big, you have collateral damage everywhere, And obviously 79 00:04:37,839 --> 00:04:40,320 Speaker 1: the last couple of years have been terrible for China, 80 00:04:40,360 --> 00:04:42,880 Speaker 1: and everybody knows it, but most people are not aware 81 00:04:43,080 --> 00:04:46,440 Speaker 1: of how bad it's been getting recently. China stocks have 82 00:04:46,560 --> 00:04:50,640 Speaker 1: a valuation that is currently at the lowest level then 83 00:04:50,680 --> 00:04:54,799 Speaker 1: it's been in a decade. When compared to the US, 84 00:04:55,160 --> 00:04:58,880 Speaker 1: the difference between the price to earnings ratio in the 85 00:04:58,960 --> 00:05:03,520 Speaker 1: United States versus China is the greatest difference it has 86 00:05:03,720 --> 00:05:07,360 Speaker 1: ever been. In fact, the difference is a staggering thirty 87 00:05:07,440 --> 00:05:12,400 Speaker 1: eight trillion dollars now. For many years, Hong Kong was 88 00:05:12,640 --> 00:05:17,000 Speaker 1: ranked extremely free on the global freedom ranks, and as 89 00:05:17,000 --> 00:05:19,760 Speaker 1: a result, it brought in a staggering amount of wealth 90 00:05:19,800 --> 00:05:22,400 Speaker 1: from all around the world. That is no longer the case, 91 00:05:22,600 --> 00:05:25,400 Speaker 1: as stocks in Hong Kong have you raised more than 92 00:05:25,560 --> 00:05:29,560 Speaker 1: six trillion dollars since their peak in twenty twenty one, 93 00:05:29,600 --> 00:05:33,320 Speaker 1: and the number of underwater mortgages in Hong Kong are 94 00:05:33,400 --> 00:05:37,680 Speaker 1: now at a twenty year high now. As one might expect, 95 00:05:37,800 --> 00:05:41,800 Speaker 1: this means that sentiment in China is in the trash can. 96 00:05:42,040 --> 00:05:46,960 Speaker 1: Foreign investors are selling China like there's no tomorrow to 97 00:05:47,040 --> 00:05:50,240 Speaker 1: get their money out. But it's not just foreign investors, 98 00:05:50,240 --> 00:05:53,039 Speaker 1: it's investors in China that are trying to get their 99 00:05:53,080 --> 00:05:55,680 Speaker 1: money out as well. Right now, there's such a scramble 100 00:05:55,800 --> 00:05:58,760 Speaker 1: to get money out of China that Chinese traders are 101 00:05:58,839 --> 00:06:02,520 Speaker 1: paying forty percent sent more than the value of the 102 00:06:02,600 --> 00:06:06,880 Speaker 1: assets to buy these funds. We're seeing unprecedented levels of 103 00:06:06,960 --> 00:06:11,080 Speaker 1: trading activity in these ETFs to get money invested outside 104 00:06:11,120 --> 00:06:14,240 Speaker 1: of China. And it's not like the central planners in 105 00:06:14,360 --> 00:06:17,240 Speaker 1: China are just sitting there watching all this happening and 106 00:06:17,320 --> 00:06:20,320 Speaker 1: hoping that it stops. They are printing money like there's 107 00:06:20,360 --> 00:06:23,920 Speaker 1: no tomorrow to try and stop the tumble. The balance 108 00:06:24,000 --> 00:06:28,120 Speaker 1: sheet for the central Bank in China has grown by 109 00:06:28,160 --> 00:06:31,839 Speaker 1: eight hundred and forty four billion dollars throughout twenty twenty three. 110 00:06:31,920 --> 00:06:35,560 Speaker 1: But despite that printing, it doesn't look like even that 111 00:06:35,760 --> 00:06:38,479 Speaker 1: is enough, and so right now they are considering a 112 00:06:38,640 --> 00:06:42,039 Speaker 1: stock market rescue package of two hundred and seventy eight 113 00:06:42,120 --> 00:06:45,080 Speaker 1: billion dollars. And as a result of all this stimulus, 114 00:06:45,120 --> 00:06:48,599 Speaker 1: we are now seeing China's bond yields back at the 115 00:06:48,760 --> 00:06:52,800 Speaker 1: lowest they've been in two decades. It's a bloodbath. And 116 00:06:53,000 --> 00:06:56,160 Speaker 1: when you compare where China's at now versus other emerging markets, 117 00:06:56,279 --> 00:07:00,640 Speaker 1: China is no longer leading After twenty years of leading 118 00:07:00,720 --> 00:07:04,000 Speaker 1: emerging markets. We are now seeing a collapse in China 119 00:07:04,080 --> 00:07:08,039 Speaker 1: while emerging markets continue to outperform. Now, I've always recommended 120 00:07:08,080 --> 00:07:12,240 Speaker 1: having international investments inside your portfolio. The problem is, for 121 00:07:12,320 --> 00:07:15,160 Speaker 1: most people, the funds that they have access to are 122 00:07:15,560 --> 00:07:19,960 Speaker 1: all international markets combined, which means it's overweight China, and 123 00:07:20,200 --> 00:07:23,040 Speaker 1: China has been overvalued for a very long time. Now, 124 00:07:23,040 --> 00:07:27,200 Speaker 1: I've always recommended international investing is part of your overall portfolio. 125 00:07:27,280 --> 00:07:29,960 Speaker 1: The problem is most funds that people look at that 126 00:07:30,040 --> 00:07:33,800 Speaker 1: are just foreign funds or international funds, they're way to 127 00:07:33,960 --> 00:07:37,520 Speaker 1: overweight China, and China's been very overvalued. So I've always 128 00:07:37,760 --> 00:07:42,080 Speaker 1: usually recommended funds that are foreign funds x China, which 129 00:07:42,080 --> 00:07:45,800 Speaker 1: means all the other stock markets around the world besides China. Now, 130 00:07:45,880 --> 00:07:48,880 Speaker 1: like I said earlier, China's not just sitting watching all 131 00:07:48,920 --> 00:07:52,000 Speaker 1: of this happen. They're trying to make the bleeding stop. 132 00:07:52,120 --> 00:07:54,320 Speaker 1: And one of the things they tried to do was 133 00:07:54,360 --> 00:07:58,880 Speaker 1: to ban short selling, which did basically nothing because Chinese 134 00:07:58,920 --> 00:08:02,040 Speaker 1: stocks now are at the lowest price they've been in 135 00:08:02,320 --> 00:08:05,160 Speaker 1: five years. But as we'll see in a little bit, 136 00:08:05,840 --> 00:08:08,360 Speaker 1: I don't know, maybe things are changing, but it's not 137 00:08:08,840 --> 00:08:12,440 Speaker 1: just stock markets that are getting hit. China's economy overall 138 00:08:12,600 --> 00:08:15,960 Speaker 1: is facing serious headwinds. Take for example, the fact that 139 00:08:16,040 --> 00:08:19,760 Speaker 1: the powerhouse of Chinese economy, which has been their manufacturing, 140 00:08:19,960 --> 00:08:24,440 Speaker 1: is starting to leave. Many international corporations are no longer 141 00:08:24,480 --> 00:08:27,640 Speaker 1: wanting to risk China with their supply chains and are 142 00:08:27,680 --> 00:08:32,080 Speaker 1: moving to India instead. Everybody's heard about the population problems 143 00:08:32,120 --> 00:08:34,320 Speaker 1: in China, that they have an aging population and not 144 00:08:34,440 --> 00:08:37,400 Speaker 1: enough young people to support all the old people. But 145 00:08:37,559 --> 00:08:40,120 Speaker 1: it's getting worse than that right now. In fact, the 146 00:08:40,200 --> 00:08:45,000 Speaker 1: country's population fell in twenty twenty two for the first 147 00:08:45,520 --> 00:08:50,080 Speaker 1: time since nineteen sixty one. China no longer has a 148 00:08:50,280 --> 00:08:53,880 Speaker 1: growing population. They have a shrinking population, and that is 149 00:08:53,920 --> 00:08:59,720 Speaker 1: a serious headwind moving forward for decades. Simply put, central 150 00:08:59,720 --> 00:09:04,640 Speaker 1: plan equals central destruction. You may not bear the consequences 151 00:09:04,640 --> 00:09:08,360 Speaker 1: of your actions immediately, but at some point you will. 152 00:09:08,440 --> 00:09:13,120 Speaker 1: But it's possible that even just temporarily, this is actually 153 00:09:13,400 --> 00:09:16,840 Speaker 1: a buying opportunity. In a shocking twist of events, the 154 00:09:16,880 --> 00:09:20,120 Speaker 1: co founders of Ali Baba, Jack Ma and Joe Sai, 155 00:09:20,520 --> 00:09:24,439 Speaker 1: are currently buying up shares of Ali Baba. There's two 156 00:09:24,480 --> 00:09:27,480 Speaker 1: things surprising about this. Number One, I guess jack Ma 157 00:09:27,679 --> 00:09:31,280 Speaker 1: is not missing anymore. And number two, they're apparently looking 158 00:09:31,320 --> 00:09:34,200 Speaker 1: at Ali Baba and thinking this is on sale. The 159 00:09:34,200 --> 00:09:37,000 Speaker 1: company is clearly worth a lot more than this. It 160 00:09:37,080 --> 00:09:39,800 Speaker 1: is gone down with the pack because of what's happening 161 00:09:39,840 --> 00:09:43,000 Speaker 1: in China right now. But this is a ba. Time 162 00:09:43,040 --> 00:09:45,040 Speaker 1: will tell if they're right. And it's true that even 163 00:09:45,160 --> 00:09:48,800 Speaker 1: people who are bearish on China right now are prepared 164 00:09:49,000 --> 00:09:53,280 Speaker 1: for a at least temporary rebound in stocks. When something 165 00:09:53,360 --> 00:09:56,760 Speaker 1: falls this hard, this fast, At some point the selling 166 00:09:56,920 --> 00:09:59,480 Speaker 1: is exhausted and you will get a bounce, even if 167 00:09:59,520 --> 00:10:01,319 Speaker 1: it's short lived. At the end of the day, everything 168 00:10:01,400 --> 00:10:03,680 Speaker 1: going on in China, it's possible that this is a 169 00:10:03,760 --> 00:10:06,280 Speaker 1: contrarian's dream, as it's saying goes, buy when there is 170 00:10:06,280 --> 00:10:08,120 Speaker 1: blood in the streets, even if it's your own, or 171 00:10:08,120 --> 00:10:10,880 Speaker 1: on Buffett says, buy when others are fearful, sell when 172 00:10:10,920 --> 00:10:14,360 Speaker 1: others are greedy. And in Chinese financial markets right now, 173 00:10:14,520 --> 00:10:16,560 Speaker 1: there's certainly a lot of fear and there's a ton 174 00:10:16,600 --> 00:10:18,640 Speaker 1: of blood in the streets. But the truth is, in 175 00:10:18,720 --> 00:10:20,920 Speaker 1: any market, there is always a long and there is 176 00:10:21,000 --> 00:10:23,880 Speaker 1: always a short. No matter what the overall economy is doing, 177 00:10:23,920 --> 00:10:27,440 Speaker 1: there will always be opportunities to make money, which means 178 00:10:27,480 --> 00:10:30,360 Speaker 1: that the only safe bet long term is to look 179 00:10:30,400 --> 00:10:33,040 Speaker 1: well into your investments. You may get lucky from time 180 00:10:33,080 --> 00:10:36,360 Speaker 1: to time timing the market exactly perfectly, but that's not 181 00:10:36,480 --> 00:10:39,520 Speaker 1: what long term investors do. In China right now, there 182 00:10:39,520 --> 00:10:43,560 Speaker 1: are absolutely companies that over the long term, will thrive 183 00:10:43,920 --> 00:10:46,719 Speaker 1: regardless of what the Chinese economy does. The key is 184 00:10:46,760 --> 00:10:50,040 Speaker 1: to be able to identify number one, which companies are 185 00:10:50,160 --> 00:10:53,200 Speaker 1: those quality companies, and then number two, being able to 186 00:10:53,240 --> 00:10:57,880 Speaker 1: calculate what price actually represents a value at What price 187 00:10:57,960 --> 00:11:00,280 Speaker 1: can you buy and you're getting the company for less 188 00:11:00,320 --> 00:11:03,079 Speaker 1: than what it's actually worth. Just because the stock price 189 00:11:03,120 --> 00:11:06,840 Speaker 1: has fallen ninety percent doesn't mean it can't fall another 190 00:11:07,000 --> 00:11:09,800 Speaker 1: ninety percent. It can. So the key is to find 191 00:11:09,920 --> 00:11:14,559 Speaker 1: world class companies and then identify what price they're actually 192 00:11:14,600 --> 00:11:16,520 Speaker 1: a value at. If you don't know how to do this, 193 00:11:16,720 --> 00:11:18,960 Speaker 1: don't worry. This is one of just one of the 194 00:11:18,960 --> 00:11:22,200 Speaker 1: things that I teach members of Heresy Financial University, because 195 00:11:22,240 --> 00:11:24,520 Speaker 1: if you don't have this skill, you will never be 196 00:11:24,520 --> 00:11:27,840 Speaker 1: able to take full advantage of bear markets. People make 197 00:11:27,920 --> 00:11:30,880 Speaker 1: money in bull markets, but they make fortunes in bear 198 00:11:30,960 --> 00:11:34,600 Speaker 1: markets because you're prepared you buy world class companies at 199 00:11:34,640 --> 00:11:37,320 Speaker 1: even better prices. If you're not already a member, sign 200 00:11:37,400 --> 00:11:39,520 Speaker 1: up below with the link in the description and use 201 00:11:39,600 --> 00:11:42,480 Speaker 1: code YouTube thirty that'll give you thirty percent off your 202 00:11:42,480 --> 00:11:45,040 Speaker 1: membership for life. As always, thanks so much for watching. 203 00:11:45,160 --> 00:11:45,800 Speaker 1: Have a great day.