The Peter Zeihan Podcast Series - The Chinese Attempt the Impossible || Peter Zeihan

Episode Date: March 20, 2025

The long-term outlook for China is bleak. I've discussed it plenty. However, the Chinese are getting a little lovin' from an unexpected source.Join the Patreon here: https://www.patreon.com/PeterZeihanFull Newsletter: https://mailchi.mp/zeihan/the-chinese-attempt-the-impossible

Hey, everybody, Peter Zine here coming here from Colorado. We're going to take a break from all the Trump stuff and talk about how China's screwed because that's an oldie but a goodie that everyone likes to hear. So over the last couple of weeks, the Chinese have been having their National Congress, which is basically a rubber stamp group of the Chinese Communist Party that gets together to slow clap.

No, literally slow clas. It was hilarious. When Chairman G walked in, like, a thousand people, slow clapped in unison. I mean, it was some creepy Orwellian shit. But it underlines, just how tight the cult of personality is, that Xi is kind of a little bit like Trump,

and now he requires these public displays of affection from people who aren't allowed to speak. Anyway, the big thing that was proclaimed was they're going to stick with the 5% GDP growth target, which they can't make, and they're going to bend the will of the state, I believe is the specific quote, to robustly expand the consumption of the people.

The idea that the state, that the state is going to get the people to spend, you know, it's clear a misunderstanding of how markets work. It's also not going to work. Most of the consumption that is done in a society is from people who are aged roughly 20 to 45 or 50, the people who are having kids. They're building up, they're accruing the assets that they're going to have in life, and they're going to college, and they're buying cars and they're buying homes. Once you hit that 45 to 50 point, the kids are usually no longer a factor. The house is probably going to be downsized, and they're done accruing material wealth, and so they then starts building financial wealth, which is a different sort of

economic activity. So for China to get people to expand consumption, he needs to make life easier for people who age 20 to 45 to 50. Two problems with that. Number one, China just went through the fastest urbanization process in human history, and its local governments, in order to get more funding from the national government as well as more local tax revenue and the like, basically sold a bunch of land, built a lot of condos, which created housing that most people can't afford. And each individual housing unit is typically owned not by one person, by a cluster of neighbors and friends and associates, with each condo being owned by a different cluster. So selling one is almost impossible.

And they don't want to rent them out because once somebody moves, into a condo, the feng shui changes, never underestimate how superstitious the Chinese can be. And so they're just sitting empty. So there's a crisis of cost of living in China. That's problem one. Problem two, rapid urbanization means a rapid drop in birth rate. We are now 50 years of that process and the Chinese now have more people aged 52 and over than 52 and under. There no longer is a big demographic of people under the age of 50 who can potentially consume. So the open question here, of course, is, has China had any real economic growth in the last five years? Because we flipped into this 50, having more people over 50 than under, during COVID,

which is when the Chinese stopped collecting a lot of statistics on their population because Xi didn't like the way that they looked. So we don't really know. But just working from what we do know, it does look like exports have expanded, while consumption is contracted faster, generally leading to a stagnation across the system in terms of the headline figure. That would be problematic enough as it is, but we now have 20% tariffs from the United States on the Chinese system, and with every incremental step up, the case for investment in China drops, which is not the same as saying that the case for moving out of China has improved. Because by threatening tariffs on Canada and Mexico, which is where most of this stuff would go,

and then withdrawing and re-withdrawing, Donald Trump is basically. basically introduced a huge amount of geopolitical and regulatory risk into the North American system. And no one who feels that they can afford to wait is going to move into that environment until that has some clarity one way or another. We are now in the sixth or seventh week Trump administration, and we've already had five different tariff policies just on Canada and Mexico. So we are nowhere close to that settling. So ironically, this is providing the change. Chinese with something that they are in desperate need of, and that's a bit of a breather, because before Trump came along, we were looking at record rates of flight of industry

from China to other places, most notably North America, because the cost structure wasn't there. The risk was there, and North America was risk-free. Now the risk in North America has risen to the level to counter out those other Chinese issues. So we're kind of in a holding pattern, waiting to see when Trump calms down.