CHINA’S HARD LANDING HAS ALREADY BEGUN – w/ Richard Duncan

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well just a word first thing on one macro watch that is what i do now in
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writing books is is great it was a great experience i hope to write and publish
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some more books going to hit but it takes a year to write a book and then
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the publisher takes at least six months to to publish the thing and get it in
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bookstores
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so what I’m doing now is macro watching micro watches a video newsletter
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I have learned a new video every couple of weeks and sell this on a subscription
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basis and so this is so much more time line and writing books
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so this has been going on now for about two and a half years
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uh I have 25 hours with the macro watch videos from the archives and as I said a
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new one is uploaded every couple of weeks so recently I’ve been doing a
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series on china china’s in the headlines everyone now realizes the time it’s
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really already started to have a hard landing
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so I’ve done now for of videos back for watch videos that have three have been
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uploaded
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once about to be uploaded next week on explaining this economic crisis in China
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how it came about what’s happening what’s likely to happen next
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yeah the the the macro watch series is as much as I said must following for
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anybody that serious but I think it’s worth the price of the script
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subscription myself just for your liquidity each and your analysis on on
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liquidity flows and flows that are happening which impact markets and in
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that we’re not going to talk about that today but that in itself is worth the
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price of admission if you would
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Richard you brought some slides let’s just jump right into the man and I and I
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know that that just a subset of the of what the analysis you have but i want to
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i want to give our listeners just some basic understanding of what’s going on
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in China and what they should be paying attention to and and then we’re going to
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start with this
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this imbalance this excess surplus that we have in china bee do be the
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difference between production and consumption right China’s economy is
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absolutely wildly unbalanced that have investors so much more than they consume
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every year and in the past they were able to export this excess production
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into the globally comic primarily to be us but now the US economy is so weak and
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global economy is so weak that the rest of the world just can’t continue
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absorbing more and more times exports every year and so between that the reef
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global demand and the fact that the rest of the world is already saturated with
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Chinese good thing that and the fact that per capita income in China itself
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is just soloed the Chinese can afford to buy all the things that china produces
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china now stop with an extraordinary luck
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it has excess capacity across every industry are just a mind-boggling right
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scale and it’s very they’re really facing level
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let’s put it mildly very great challenges as to how they can manage
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their economy now going forward
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so just in this first chart then to begin with
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what this shows is investment in china now that doesn’t mean other people
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investing in China it means how much money is invested in all kinds of gross
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fixed capital formation
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what that means is not only investment in building new factories but investment
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in housing office buildings
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residential buildings commercial buildings all kinds of investor gross
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fixed capital formation
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well you can see that it expanded 50 times between 1990 and 2014
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so just extraordinary explosion of investment that and that has been the
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the real fuel behind china’s economy
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you could say China’s followed a development strategy based on export-led
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an investment driven growth so here you see the 50 fold expansion of the
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investment driven growth and i’m not i’m looking at this
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the things examples of this of the investment where it went into cement
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production for example
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that’s right so the next chart we have cement production
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you can see that it has increased fight 12 times between 1990 and 2014
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and by the way just in three years along between 2011-2013 china produces much
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cement of the United States did during the entire 20th century
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all right that is really quite incredible
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but think about that that means it over the next three years that you might
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china again produces the same amount of cement that will be of course again as
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much as US did in the entire 20th century and the same for the following
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four years in the same for the following three years but that would represent no
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growth whatsoever for China that would just be zero growth in the cement
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industry so it just gives you some idea of how much excess capacity and
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production they’re drowning out and by the way they now have fifty nine percent
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of global cement capacity and the next chart is on steel
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it’s a similar story 12 fold increase the spring 1998 2014 and they now have
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fifty percent of global steel production at me
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problem is the world doesn’t need that much
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global steel production capacity the capacity utilization for the world is
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only sixty-five percent that mean
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thirty-five percent of all existing capacity for steel in the world is going
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on used and so that’s why it’s pointless for China build any more steel capacity
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because they can’t sell the steel they’re making already but if they don’t
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continue investing and they’re not going to have economic room and then and and
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they’re not only economic growth job creation and with 1.3 billion people
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a lot of still moving from the Royal to the urban centers looking for jobs they
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expect the government to create jobs
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so now you’ve got this artificially high run rate and the jobs associated with
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any kind of slowing could mean layoffs but it also means lack of job growth and
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and that’s what they hold the government accountable 20 is
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am I correct in that you are right and I’m going to put this into a bearer
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perspective
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China’s main goal for the last several decades has been to create jobs through
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this investment driven an export-led growth and they have succeeded
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brilliantly in doing that
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oh they have created 390 million jobs in the last between 1980 and 2015 so this
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is having a population explosion of the population is more than doubled in china
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during my lifetime
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they had to find these people jobs and i have so the strategy worked out really
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really up until the time that the US economy went into crisis
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2000a so long as the u.s. current account deficit continue to grow larger
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and larger every year
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that was great we’re going to us but it happened it
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it’s bitch it’s actually it’s we asked about the deficit but it’s been the
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deputies been shrinking so by trip is peridot up shits
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it’s actually starting to strangle China because of this lack of extra funds
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coming in right
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is that a fair assumption that’s right so starting in up until nineteen eighty
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years so the US trade was in balance under the bretton woods system trade
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have to balance it was only after nineteen eighty-two us started running
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these very large trade and current account deficits and by 19 by 2006 the
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current account deficit groan all the way out to a hundred billion dollars
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that one year long so you could call that with the international monetary
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system that

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