Two months ago, long before the WSJ and the NYT wrote virtually carbon-copy pieces, we laid out a list of China risk factors which everyone by now is familiar with. These were as follows:
- a slowing economy crippled by soaring debt, now over 300% of GDP
- an economy which is overly reliant on fixed investment
- an artificially high exchange rate which is adversely impacting exports and impairing trade, in a "beggar thy neighbor" world everyone is rapidly devaluing their own currency
- the feedback loop of plunging commodity prices and highly levered domestic corporation which can not pay their annual interest expense payments at current prices of industrial commodities, leading to surging business failures and defaults
- a burst housing bubble which recently popped (although slowly growing again)
- a burst stock market bubble which recently popped (although slowly growing again)
- Non-performing loans, as high as 20%, and metastsizing across the Chinese banking sector
The market has been struggling to price many of these into any existing investment theses.
We also said what we think is, as of this moment, is the biggest, and most, underreported risk facing China: social discontent, resulting from a breakdown in recent "agreeable" labor conditions, wage cuts and rising unemployment, leading to labor strikes and in some cases, violence.
To corroborate this, in November we showed a tally of labor strikes through the 11th month amounted to a record high 2,005. We have updated this to show that in just the last two months of the year, labor strikes in China have exploded, sending the total to a whopping 2,703.
This chart alone, more than any bullshit goalseeked "data" released by the Chinese politburo, reveals all one needs to know not only about the Chinese economy and its collapsing labor situation, but also the social mood because for Chinese workers to dare to protest their employment conditions knowing full well they risk the full retaliation of the state which always frowns upon public displays of dissatisfaction, things in China must truly be on the verge of total collapse.
A useful anecdote to illustrate what is truly happening on the ground, comes courtesy of the NYT which tells the story of how having lost his factory job, one Chinese migrant worker returns home.
Liu Lang, a Chinese migrant worker, left his rural hometown in Sichuan Province two decades ago to work in the factories of the southern province of Guangdong, China’s manufacturing powerhouse. Now, he is moving back.
“I worked my way up from a basic worker to a department head. And my career basically ended today,” Mr. Liu said on the train leaving Guangdong.
Factories in Guangdong have been hit hard by the slowing economy, and many of them have closed, including the shoe factory where Mr. Liu worked.
In 2015, China’s economy expanded 6.9 percent, just below the government’s target of 7 percent, according to official numbers released Tuesday. While the pace would be the envy of many developed countries, it marks China’s slowest economic growth since 1990, the year after the government’s crackdown on protesters in Tiananmen Square.
“My wife and I were both working at that factory,” Mr. Liu said. “We lost more than 20,000 renminbi for the last three months,” he added, referring to about $3,000 in unpaid back wages.
Now multiply this by tens of millions to grasp the severity of the problem.
In the next update, we will read how Liu and millions of his unemployed peers take to the streets, when after months of failed attempts to find jobs they turn violent and demand that the government do something to help them; the same government which is now facing an economic catastrophe.