Brewing Chinese Financial Crisis | Top of Mind Series
In this Invest Like a Billionaire podcast episode, co‑hosts Ben and Bob Fraser dissect what they see as a looming Chinese financial crisis. They argue that China’s decades‑long growth model—driven by massive infrastructure and property construction financed by debt—has hit a wall because the country’s population peaked a decade ago and is now set to halve by the end of the century. The hosts explain how this demographic slowdown undermines demand for new apartments, roads, and trains, turning China’s once‑stimulative building boom into a liability. They compare the situation to Japan’s 1990s property bust, warning of “Japanization” and the emergence of “zombie banks” that carry over‑valued bad loans on their books. While they doubt a full‑blown banking collapse (citing the U.S. Fed’s 2009 playbook as a possible template), they see a property‑price collapse as more likely, which could trigger bankruptcies, spill‑over losses for lenders and insurers, and modest ripples for foreign investors. The conversation also touches on broader forces—reshoring, de‑globalisation, and what they deem incompetent Chinese leadership—that compound the risk. Throughout, they challenge optimistic narratives from figures like Ray Dalio, attributing his bullish stance to vested interests. The episode ends with a call for investors to scrutinize the data, watch the hosts’ megatrends presentation, and stay wary of hype.
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Welcome back to another episode of the Invest Like a Billionaire podcast. I am your co-host Ben Fraser, joined by fellow co-host Bob Fraser. We got another top of mind episode for you today. These are shorter episodes focused on interesting things that we're seeing in the marketplace, we're reading news on, and I think it's relevant to our listeners. And so one of the things we've been talking about kind of sprinkled in here over the past few months is China. We did a whole big megatrends presentation just recently. You can go watch, we'll link to it in the show notes here on China, what's the future of China? And what you're hearing out there, you know, some economic proponents and those that are saying China is still in a good place, it's, we think, skewing the narrative of what's really going on behind the scenes. And, you know, here in America, we've been talking about what's been going on here. We think the economy is in a good position. It's continuing to grow, consumers strong. But there are, you know, these extraneous things out there and potentially black swan events that could happen. And we think the biggest risk potentially of those would be something related to China. So Bob, talk a little bit about what's going on and specifically in the kind of property bubble and just the economic boom that we're starting to see, you know, relax here. This is the Invest Like a Billionaire podcast where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and interview successful investors. Looking for passive investments done for you? With Aspen Funds, we help accredited investors that are looking for higher yields and diversification from the stock market. As a passive investor, we do all the work for you, making sure your money is working hard for you in alternative investments. In fact, our team invests alongside you in every deal, so our interests are aligned. We focus on macro-driven alternative investments so your portfolio is best positioned for this economic environment. Get started and download your free economic report today.
And while everybody's talking about World War III and Hamas, you know, in Israel, it's like, You know, I don't see how that blows into World War III. And, you know, you know, no one is interested in that. You know, you know, Russia's going to enter, right? They've— they're dealing with their own, you know, crisis that they're barely managing in Ukraine. You know, China, they don't— you don't give a rip about this. If there's anything they can foil us and make us look bad, yeah, but they're not interested in full-on confrontation. Iran doesn't have a lot of friends except these little— these little, um, you know, these little, you know, um, enclaves that are, you know, with the militant, you know, funding coming out of Iran. You know, Syria's in the middle of a civil war. Jordan is, you know, not, not really a player. They don't have a military. You know, I mean, there's just no way World War III is really going to happen there. But, and, but then what's happening is everybody's not paying attention to the real problem that's unfolding, and it's this slow-motion train wreck called China. And what's happened— so China for years has just built stuff. I mean, they're building massive infrastructure in, you know, canals and dams and apartment complexes and roads and trains, and they're building this massive infrastructure. But if you look at their demographics and, and, um, you know, you know, there's a great article from the Wall Street Journal. I, I— you, you should, uh, you should, uh, look at— Google this one. It says Wall Street Journal: China's 40-Year Boom Is Over. What Comes Next? And, uh, you know, the subtitle is: The economic model took the country from poverty to great power status seems broken, and everywhere are signs of distress. And, and we've been calling this for a while. China, China is over as a, as a, as a global power. Their, their population peaked about, um, 10 years ago. And their population is declining today. And what's more, their population is going to be half what it is today in— by the end of the century. So how many roads are they going to need? How many new trains? How many apartment complexes? Literally, imagine every apartment complex, right? 50% full. And that's as full as it's ever going to be, right? Every train, 50% full roads. And they've been building this stuff. So one of the ways they've done this boom, they created economic boom by creating these building booms and just get more and more in debt and build stuff, which is stimulative.
And anybody think there's a problem with that?
I mean, borrow money and build stuff that nobody wants. Anybody see the problem there?
You know, it's like it only works when everything just keeps going up and to the right, right? And population— exactly, one of the biggest drivers of GDP growth.
And we haven't—
I mean, we've been in a population boom for the past, you know, 100-plus years. Globally, and it started to kind of peak in a lot of development.
It's rolling over.
It's rolling over globally. Yeah, we don't have a concept for that, right? Because if you have less people, you don't need as much stuff, you don't need as many apartments.
And if you have half, half the people, your GDP is half, right? Your economy is half, you know, unless you double your productivity somehow. But, um, so what's happened is we're seeing a— the popping of the property bubble And it's going to create tsunamis in, in China for sure, you know. So are we predicting a banking crisis coming out of China? I don't think so. And the reason is the banks are state-controlled. And if you look at the playbook that the Federal Reserve did in 2009 to stem the great financial crisis, the giant meltdown we had, You know, no one knew if it was going to work. It was all— I mean, doing these equity injections, the bank bailouts, the TARP, the TARP programs, you know, all the, all the bailout programs. No one knew what was going to happen. They were just plugging holes in the dikes as fast as they could. Well, it worked. And I think I'm personally of the firm belief that America would have entered into a second Great Depression had they not fixed this, because you get into a doom loop. Where people start lose their jobs, and people lose their jobs, stop spending, and people that stop spending, then you— then people lose their jobs, and it's a doom loop. And you have to have— this is where, you know, the anti-government thought around a lot of conservative, you know, fiscal conservatives is wrong. Um, you absolutely need a government to create artificial demand sometimes and to stop a doom loop. Just to, you know, the bike is rolling down the hill and it's, you know, gaining speed. You, you put a put a stick in the spokes and stop that thing. And that's exactly what the, what the Fed did. Well, so the playbook has been, been written now and everyone globally, all the central bankers see, you know, see how it's been written. So I think they can, they can stem a giant, giant banking crisis, property crisis. You can't prop up all the property values. Now, what it looks like to me is Japanization. And what happened, you know, I don't know if people remember the, you know, the 1980s and when— I mean, it was literally that Japan had a property bubble like nobody's business. Remember when in the 1980s when, you know, Japan was going to take over the world and everyone was afraid of Japan. They were, you know, all the— everybody, what everybody's been saying about China for the last 20 years, they were saying about Japan before that. And literally the property under the, the Japan— oh gosh, I can't remember the, the temple complex or the palace, the palace complex or the land under that was worth more than all the property in California combined. Right. You know, and the property values were insane and, well, it all popped and it went down. But what happened? We didn't see a global tsunami. What they did is they changed the banking regulations to allow the banks to carry the bad debt on their books at these elevated prices and not write them down. Yeah, brilliant, right? Well, not so much. It created what we—
what they—
what they termed later zombie banks. So these banks have the, you know, you got— you got a $100 million loan out there on— as an asset on your books on a property that's worth $20 million, and you just carried that. Well, how many— how many more loans you're going to be making? Not much. So there were these banks became zombies. They just They couldn't do anything. They couldn't move forward. They couldn't move backwards. And it took basically, what, you know, 40 years to clean it out. And now, now they're reasonably healthy again, you know, and inflation, you know, over, over the 40 years and super low interest rates helped, you know, facilitate all this. So it looks to me like that's what, you know, if they do this, that's, that's one approach is to basically you don't let the banks fail. You just let them continue carrying an upside-down balance sheet and pretend your balance sheet is fine, right? And you just keep— they keep making, you know, keeping business. So it's what it's increasingly looking like to me. Yeah.
I mean, and the challenge too is, you know, we never— you never get good data out of China too. It's a little hard to tell what's going on and how severe the problem is already. But I mean, to your point, you know, you can maybe stymie the bleeding in a banking crisis. But if all of a sudden over the next 70, 80 years you have half the population that you once had, property values— I mean, there's, there's just, there's no way to, to change the values if you have an apartment building that's just half full.
Right.
And right. You're going to generate half the rents and half the income. And so there's a bigger problem from that standpoint of there's no way to change the values of those or try to sweep it under the rug. But I mean, how do you see this playing out as a potential black swan?
Right?
I mean, maybe let's play the kind of thought experiment of they don't try to smooth this out in a Japan-like way. You know, how could this impact the Chinese economy? How would this maybe be the ripple?
Well, so assuming they prop up the banks, um, they don't let the bank— now if the banks start failing, you will see, you will see a, a massive financial meltdown across China because banks are the, are the, are the plumbing, right? Credit is the plumbing of any modern society. It's the financial plumbing. And if you literally stop the plumbing, you know, um, It's, it's horrendous. And so, you know, but so if the banks fail, you are going to see a pretty massive financial crisis, um, erupting out of China and a meltdown, big, big giant meltdown. I don't think that's going to happen. The other thing we could see is a property bubble popping, and what that means is lots and lots of bankruptcies, and then it could spill over to, uh, the bankruptcy spill over to the lenders and the, you know, like the insurance companies and the, you know, the private credit companies. And so you see a big meltdown in, in these kind of things. And so that's, that seems more likely to me. You're, you're seeing a property, just the property prices crash and lots of wipeouts of individuals, investors, and, uh, just a, just huge destruction of wealth, uh, that happens by You know, when a bubble pops, that's what happens. So, you know, would that spill over to America? Well, you know, okay, you've got, you know, there's a lot of investment that has happened in China by Americans and Europeans over the, over the decades. I mean, you know, hundreds and hundreds of billions of dollars. Um, so those companies could be at risk in something like, like that. But are they— is it big enough to create a real tsunami in America or Europe? Probably not, right? Probably not. But could it create some little ripples, you know, and some real problems with individual companies? Absolutely. But a systemic problem? Probably not, you know. And now we're seeing— if you saw— but the economic data coming, coming out of crisis— oh, and by the way, the article here in Wall Street Journal is the Chinese financial crisis no one's talking— nobody's talking about. So you can Google that if you like. And then the numbers coming out of China, we're seeing fresh signs of slowing coming out of China. And it's because of a property bust as well as we're seeing changes in America. And, you know, as companies are reshoring, think about this, you know, so America's bringing back manufacturing and I mean, it's been going on for 50 years. 3, 4, 5 years now. I mean, gaining momentum. Well, every time these companies are coming on board in, in America, they're going to stop making orders from China. And so you're seeing a decline, you're seeing a decline in demand out of China. Furthermore, the property bubble. So if people are— have lost their investment, they're no— right, their investor, you know, these investors, that includes retail investors and corporate investors, have all of a sudden, and they see their equity being wiped out, well, are they going to be spending on new factory builds and, you know, consumer spending, etc.? Well, they're not buying those cars and everything else. So, so you're seeing internal demand slowing from the property bubble, and you're also seeing external demand slowing because of the deglobalization trend that's happening worldwide. So they're being hit from every side possible, and then have the worst leader ever in China's history at the helm doing the stupidest things that have ever been done in the history of China. Well, there's been a lot of stupid things done in, done in China, so I probably can't say the stupidest, but he's certainly way up there in as far as absolutely incompetent leadership. And so, um, it's, it's not a good time for China.
No, I mean, this is something that investors really need to pay attention to and really dig in because so much of the headlines and You know, we'll, we'll say Ray Dalio, who's a spokesperson and constantly talking about China being the next global superpower, which is laughable. That's just so laughable. But he's got such an audience and he's a brilliant guy.
So it's hard to explain that to me because I don't know how I can agree with that. Right.
How?
Yeah.
Well, I think the explanation is a vested interest. He is right because he has a lot of investments in China. He has reason for China to—
so he's banging the, banging the China drum, but you think he really believes it, or is he just banging the China drum because, you know, I mean, it's confirmation bias, right? You, you see what you want to see, right? What you want, or, or you're just being a complete— you know, you know the truth and you're saying the opposite because it's in your best interest to, to do so.
I think it depends on your time scale, right? I mean, in the short, short term You know, maybe he has some things that are accurate and they're— no, we probably disagree. But in the long term, it's really hard to agree with the data. And I encourage you, if you have not watched our Investable Megatrends presentation, please go do so. We're going to put the link in the show notes here and you need to see the charts and you need to see the projections for the population decline of China and the confidence levels is what's so crazy about this is they cannot turn the ship around. I mean, it's not something that can really be changed at this point. Their destiny from a population standpoint is pretty well written for the next 100 years.
It is.
And so this is something investors need to pay attention to because it's, you know, they're selling the alarms and, you know, China's a superpower and take over the US. And it's just this fear-based content and honestly just BS that is not founded in facts. And it's it's not helpful for investors. And so, you know, we want to just come out and say this because it's, it's really important to pay attention to it. And, you know, be sure to watch the presentation if you haven't yet. All right. Well, thanks so much for listening. Hope you enjoyed this episode. If you're enjoying it, I appreciate you leaving reviews and sharing it with a friend. And be sure to tune in next time for another episode.
