Uniqueness Updates - Michigan 2024 CGO

Uniqueness Updates---CGO
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This file provides Uniqueness updates for both the 2024 Elections & Economy Da’s up to 7/31. Almost all the cards are fully highlighted and ready to use!
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China Uniqueness Updates
China Economy Updates
China can’t be a leader – their economy is collapsing
James H. Nolt 24 adjunct associate professor of international relations at New York University and author of International Political Economy: The Business of War and Peace. He was founding dean of an international college in Nanjing, China, and for 23 years Senior Fellow at the World Policy Institute in New York. (03-4-2024, “China’s Economic Slump Is Here to Stay,” Time, https://time.com/6835935/china-debt-housing-bubble/ AKS)
China is in the midst of a profound economic crisis. Growth rates are flagging as an unsustainable mountain of debt piles up; China’s debt-to-GDP ratio reached a record 288% in 2023. But even that eye-popping figure does not capture the uncomfortable fact that much of it was borrowed to buy assets that no longer yield enough income to repay the debt. This is especially true in the housing sector, where sales have fallen by a third since the pre-pandemic peak, and new construction is down 60%. This is one of the worst housing crashes in the world over the last three decades.
Many Western pundits and politicians view this crisis as a sign of the bankruptcy of China’s leadership and economic system. But it is more akin to the cyclical debt crises that have plagued capitalist countries throughout history. An apt comparison is Japan’s crisis of 1989, which ended decades of high growth and rising asset prices, fueled by a ballooning debt bubble. Japan’s Nikkei stock index peaked in late 1989 and fell almost 80% over the next 13 years. Real estate prices fell for two decades starting in 1991. Neither of these major asset classes has exceeded the pre-crisis price peak ever since. Japan transitioned from being the fastest growing major economy during 1954-73, typically growing over 10% per year, to the slowest, with growth averaging only 1.75% per year from 1981 to 2023. China may be facing similarly prolonged difficulties.
China’s astonishing rise was propelled by an even greater expansion of debt following Deng Xiaoping’s market-oriented “Four Modernizations” in the late 1970s. Like Japan during its postwar “economic miracle,” China’s growth was led by an export and real-estate boom. In less than a half century, China went from an impoverished centrally-planned economy with minimal international trade to the world’s leading exporter and close second to the U.S. in the number of billionaires.
The eventual collapse of China’s bubble has always been inevitable. All boom-and-bust business cycles must end, because the rapid expansion of debt creates opposing interests: bull and bear parties. The bullish developers in China today want ever rising mortgage lending so real estate prices continue rising. Yet the bearish creditors—mostly big banks and bond owners—are concerned that price inflation reduces the value of their debt assets.
The bubble is already bursting. Chinese creditors have now scaled back new lending and raised interest rates, following government guidance announced as the “Three Red Lines.” As the most indebted Chinese bulls go bankrupt or panic sell to repay their loans, prices are falling further as their bear counterparts jump back in and buy assets at fire-sale discount prices. That will eventually put a floor on the price collapse but it is also redistributing wealth rapidly from debtors to creditors. Bears feast on the bulls during every crash.
There is an added wrinkle in China’s case. Most provincial and local governments have been profiting and gaining prestige by financing real estate development on a massive scale—Goldman Sachs economists put the figure at $8.4 trillion, or nearly 50% of GDP. Local governments profit much like any real estate developers would. But the central government in Beijing is increasingly siding with the bear party, because it is concerned about the value of the renminbi, which hit a 16-year low in September. Beijing has intervened to prevent the Chinese currency from falling too far too fast by selling foreign reserves and buying renminbi. Although it has ample foreign currency reserves, if the real estate boom had continued unchecked, these would have eventually dwindled.
Beijing’s policy dilemma is intense. Rising real estate prices have slowed consumer demand, especially young people hoping to buy their first home. This is one reason for the recent precipitous drop in marriage and birth rates. Brick-and-mortar businesses are plagued by the high cost of property, driving more and more business to the internet. On the other hand, falling prices afflict all those who bought real estate with mortgage debt, whether homeowners, speculators, or businesses. They may find themselves under water when their property value falls below their outstanding debt.
China’s government bears much blame for “causing” this crisis, but the scale of the crash is largely based on private incentives to borrow and lend. When the economy seemed excessively overheated, Beijing actually assisted the bears with its Three Red Lines policy in August 2020. These credit restrictions were draconian for bulls, given the enormous overextension of many of the biggest Chinese property companies as well as millions of individual investors. As soon as prices start to plateau and then fall, speculator demand evaporated. Consumers might need to buy real estate for use, but speculative investors only want to buy if they are confident prices will continue to rise. The current slump is a victory for the bears, not a policy failure.
The slump won’t end anytime soon, but the government might at least redistribute the losses. Staunching the fall of prices is difficult because of the massive inventory of unsold or partially constructed apartments. Reasonable estimates of the number of empty apartment units (many unfinished) range from 50 to over 100 million. Even if no more homes were built, it might take a decade or more to utilize the existing inventory. Recently, Beijing has tried to preserve the jobs of construction workers by pushing state-run banks to resume lending for the completion of construction projects halted when their developers lost creditworthiness, but this policy will increase the supply of unsold units, intensifying the price slump.
If the government is determined to let prices continue to fall until consumers and speculators start to believe they are “low enough,” a price floor will be found, but that floor might be too low and sales too slow to enable real estate developers and investors to repay the loans borrowed to build or buy those units, bankrupting many. Such a wave of bankruptcies would endanger the Chinese financial system, especially the unregulated “shadow banks” that have aggressively invested in China’s housing bubble.
Many pundits blame governments whenever economies crash, but the real cause of China’s slump is the long period of fast growth that piled up vulnerable and unsustainable debts. The higher they fly, the harder they fall.
China’s collapse prevents it from leading
Jermery Mark 24 a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and a specialist in political, economic and financial issues related to Asia and Africa. With the GeoEconomics Center, he writes on US-China issues and developing country debt. He worked for the International Monetary Fund as a communications specialist for more than two decades, including as an adviser and speechwriter to the IMF management team. Mark holds a BA in East Asian Studies and Chinese language from Vassar College, an MA in Southeast Asian Studies from the School of Oriental and African Studies of the University of London and an MSc in Journalism from Columbia University. (05-22-2024, “There’s less to China’s housing bailout than meets the eye,” Alantic Council, https://www.atlanticcouncil.org/blogs/econographics/theres-less-to-chinas-housing-bailout-than-meets-the-eye/ AKS)
Beijing grabbed headlines last week by declaring its resolve to address the country’s deep property slump with 300 billion yuan ($42 billion) of central bank funding for state-owned enterprises to buy up vacant apartments. That money, along with relaxed mortgage rules, briefly offered a slight hope that the government finally is coming to grips with a crisis that has undermined China’s economy.
The reality is that Beijing’s measures are a mere drop in an ocean of empty or unfinished apartment buildings, moribund developers who have defaulted on at least $124.5 billion of dollar debt, and hundreds of millions of homeowners who once bet on a now-collapsed property bubble. It also is bad news for an economy that over the past two decades came to rely on the property sector—and the industries like construction that it turbocharged—to provide between 20 and 30 percent of the growth that fueled China’s economic “miracle.”
Even if the Chinese government eventually comes to grips with the current crisis, it is extremely unlikely that the property engine will end up firing on more than a few cylinders. The combination of a declining population, slowing urbanization, and market changes that have made new homes less attractive than existing housing stock means that frothy property development will be a thing of the past.
None of this is good news for the global economy. The downsizing of China’s housing demand will be felt by natural resource suppliers across the developing world. But of far greater concern will be the implications of China’s growing reliance on low-priced exports to fuel growth—a surge that already is sparking trade tensions with the United States, Europe, and emerging market countries. This dependence on factory output will be a constant now that the property bubble has collapsed, taking with it a big chunk of Chinese domestic demand.
The impact of the real estate downturn has been reflected for months in China’s economic indicators. Sales of new and existing homes fell at a record pace in April, and property investment plummeted nearly 10 percent year on year. Home prices posted their sharpest decline in nearly ten years. The impact on employment in the property sector has been severe: an estimated half million real estate jobs have disappeared since 2020.
The carryover to the larger economy has been severe. Consumer spending has been hit especially hard, with many small businesses failing to recover from China’s strict Covid-19 shutdowns. Automobile sales posted their largest one-month drop in nearly two years in April, and overall retail sales rose at an anemic pace. Youth unemployment is a lingering problem, although the government’s recent recalculation of that number after it rose to an embarrassing 21 percent has masked the true extent of the problem.
The damage from the property collapse is virtually everywhere in China, with the possible exception of mega-cities like Shanghai and Beijing. Unoccupied and uncompleted buildings are ubiquitous, especially in smaller provincial cities that hosted the final stages of the building boom. Housing statistics compiled by Bloomberg and Chinese researchers estimate that the current stock of unsold housing in 100 major cities totaled 511.8 million square meters at the end of February, down from a peak of 530.6 million at the end of 2022. That is roughly ten times the total office space in Manhattan.
Goldman Sachs estimated last month that it will cost 7.7 trillion yuan to buy up enough apartments to return China’s inventory of empty homes to 2018 levels—and that assumes a 50 percent discount on current market prices. That figure is roughly 25 times the amount in the central bank’s bailout plan. The same study calculates that Chinese developers need $553 billion to complete housing that they pre-sold to buyers, and then failed to finish, in what amounted to a nationwide Ponzi scheme. Even that is far more than the $42 billion allocated in the new plan.
The core problem that China faces in dealing with the remains of its property bubble is the sector’s interlocking financial obligations of private and government developers, financial institutions ranging from state banks to shadow institutions, and local governments (many of which set up financing vehicles to buy land that the governments themselves put up for sale). With the market’s collapse, that foundation now has become profoundly unstable.
While developers have defaulted on their dollar-denominated bonds issued overseas—leaving foreign investors with little recourse but to file suit in Hong Kong courts—Beijing so far has tried to forestall defaults and restructuring of yuan debts. To mishandle the situation could have destabilizing consequences that would further damage the economy and undermine the legitimacy of Xi Jinping’s government. The result so far has been incremental steps: funding for some developers to complete pre-sold apartments, interest rate cuts to encourage buyers, and the release of funding like last week’s central bank initiative.
But buyers remain cautious, in part because prices so far are not coming down significantly. More importantly, banks are very hesitant to lend the cheaper money that’s been made available. For example, when the central bank last year made available $27 billion of interest-free funding developers to complete apartments, banks lent only a tiny proportion. They worry that they will be left holding the bag when defaulters eventually default.
On the other hand, history suggests that a bailout delayed only becomes an ever-larger bailout. The IMF, which has considerable experience helping countries address property crises has recommended that China pursue “more market-based adjustment in home prices and quickly restructur[e] insolvent developers to clear the overhang of inventories and ease fears that prices will continue to gradually decline.”
But it is not clear whether Beijing is willing to commit the trillions of yuan—and the political capital—that will be required to do this. The government has begun issuing what is slated to amount to $138 billion of ultra-long-term bonds this year and has announced plans for $539 billion of local government bonds. But it remains to be seen how much will go to relieve the property crisis. With local governments and their financing vehicles overloaded with more than 100 trillion yuan of debt, Beijing is facing many difficult decisions.
It may just end up trying to muddle through while repeating its declaration of the need “to urgently build a new model of real estate development,” as the Politburo stated on April 30. In that case, it will continue to widen the divide between weak domestic demand and expanding exports—with all the international political tensions that inevitably will result.
Reject Chinese estimates of economic growth.
Owyang ‘17 [Michael T; Hannah Shell; July 25; Michael T. Owyang is an economist and senior economic policy advisor at the Federal Reserve Bank of St. Louis. His research focuses on business cycles and time series econometrics. He joined the St. Louis Fed in 2000; Hannah G. Shell is a senior research associate at the Federal Reserve Bank of St. Louis; Federal Reserve Bank of St. Louis, “China's Economic Data: An Accurate Reflection, or Just Smoke and Mirrors?,” https://www.stlouisfed.org/publications/regional-economist/second-quarter-2017/chinas-economic-data-an-accurate-reflection-or-just-smoke-and-mirrors] eddie
Indexed GDP Proxies
Several private-sector research firms have developed their own measures of Chinese GDP growth based on a wide array of indicators, including freight volume, passenger travel, electricity output, construction indicators, purchasing managers indexes, financial indicators like money supply and the stock market, alternative GDP deflation measures, and alternative measures of production.6
These indexes focus on measuring the quarter-to-quarter growth rather than the level of output, but all of them suggest that there has been overstating of growth during downturns and in recent years. Consistent overestimation of quarterly growth could lead to an exaggerated GDP level, an issue we address below.
All the indexes suggest China’s GDP growth is lower than the official estimates. Lombard Street Research’s measure, based on searching for a more accurate way to deflate nominal GDP, estimated a 2.9 percent growth rate in the third quarter of 2015, while Bloomberg’s model—which includes more data on industrial output and retail sales—estimated growth of 6.6 percent in the same period; the official estimate was 6.9 percent for the third quarter of 2015. The problem with these measures is that a lot of them are black boxes, leaving one to wonder if they give adequate weight to the many complex facets of the Chinese economy.7
Perhaps the most popular index for Chinese GDP is the one suggested by and named after Li Keqiang, then China’s vice premier and now premier. In 2007, Li was quoted in a U.S. diplomatic cable later released by WikiLeaks as saying GDP figures are “man-made” and therefore unreliable. He went on to say that instead of looking at official figures, he uses electricity production, rail cargo shipments and loan disbursements.
This index is easily constructed by anyone with access to these three data series. Researchers John Fernald, Israel Malkin and Mark Spiegel designed an index based on the three variables and made the data and methodology available in an online appendix.8 The researchers fitted a regression of the index on real GDP growth from 2000 to 2009 and then used the fitted values to predict real GDP growth from 2009 through 2012 (referred to as out-of-sample in the accompanying graph).
Their results indicate that the relationship between GDP and the Li index during the 2000-2009 period continued to hold in the 2009-2012 period. In other words, the changes in official GDP statistics during the 2009-2012 slowdown were consistent with Li’s index. This analysis offers some validation that the quarter-to-quarter percent changes in Chinese official statistics are not overstated.
These methodologies, however, would not detect whether the level of Chinese GDP has been consistently overestimated for a long period of time. Moreover, many of the GDP proxies do not include any measure of China’s growing service sector or agricultural production. By some estimates, services now make up about 49 percent of Chinese output, compared with physical production, which makes up 42 percent.9
Luminosity
Another alternative method uses satellite data that measures the intensity of man-made night lights (luminosity). Unlike indexes of human-produced economic data, these data are immune to falsification or misreporting. The night-lights data we examine are gathered by Air Force satellites circling the earth 14 times a day since the 1970s. The satellites measure the light intensity emanating from specific geographic pixels, which can be aggregated to subnational, national and supranational levels. In 2012, economists J. Vernon Henderson, Adam Storeygard and David N. Weil created a dataset using information from night-lights satellites and applied it to estimate GDP in countries with low-quality data.10
The three researchers identified several reasons why night-lights data are a good proxy for economic activity. First, they argued that night-lights data track GDP because consumption of all goods in the evening requires light. To verify this claim, they confirmed that variation in pixels lit across countries is positively correlated with income (controlling for population density).11
Henderson, Storeygard and Weil estimated a 14-year change and annual changes in economic activity for a panel of 188 countries between 19

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