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In China, the one child policy caused significant damage to human capital and the economy. Communist party leaders boasted about eliminating 400 million people through forced abortion. This led to a massive loss of potential, as the most productive individuals were killed off. The consequences are evident in the 70 million empty apartment buildings and the absence of young men and women who would have started families. The forced abortions and sterilizations also caused immense suffering for women. The Chinese Communist Party, responsible for this tragedy, has essentially destroyed China's future. It took them until 2016 to realize the devastating impact of the policy.

In the nineteen nineties, South Korea experienced rapid economic growth. But behind the scenes, problems were piling up, excessive corporate expansion, rising debt, and weak financial regulations. Then came the global financial shift. As foreign investors pulled out of East Asian markets, South Korea found itself in deep trouble. By November 1997, the government had no choice but to seek a $58,000,000,000 bailout from the International Monetary Fund, IMF. In return, Korea had to undergo painful economic reforms, corporate restructuring, financial sector reforms, and fiscal tightening. The impact was severe. Many businesses collapsed, unemployment soared, and families struggled.

BlackRock has purchased £1,400,000,000 worth of UK homes, and Lloyds Bank aims to own 50,000 homes by 1930. Massive institutions are buying up UK homes, potentially leading to a society where homeownership is unattainable and people are forced to rent. The next fifteen to twenty years may represent the last opportunity to buy a home. Renters will not be able to negotiate with massive US private equity firms, where they are just a line item. Multinationals are buying up all of the homes in the UK.

There's even more bad news as China's economy exposes a deeper problem in shadow banking. The shadow banking sector is estimated to be worth at least $3,000,000,000,000, and that's in China alone. And it all started with real estate. The country is facing a financial meltdown. Every week, there is a new headline about its impairments.

China nearly met this fate during the 1980s as George Soros enjoyed vast control over China's economy and found a loyal Chinese devotee in Zhao Jiang, who became premier from 1980 to 1987 and, from 1987 to 1989, chairman of the Communist Party of China. In 1986, Zhao sponsored the first of two Soros-run think tanks with the fund for the reform and opening up of China, using a million dollar grant by Soros, followed by the Institute for Economic and Structural Reform co-run by Zhao’s close advisor Chen Yizhi. Zhao also ensured thousands of young Chinese were given scholarships to receive indoctrination into Milton Friedman’s ideology within western universities, where they were expected to return to oversee China’s inevitable perestroika as a new technocratic managerial class. All that was needed was a revolutionary shock to break the hold of China’s nationalists and force Zhao Jiang into a Pinochet-like position of dictator and privatizer who would force his nation into the IMF clutches. It was here that the CIA’s James Lilly, Ambassador to China, the National Endowment for Democracy, and George Soros deployed all of their resources to activate a full-blown color revolution on 06/04/1989, with student demonstrations in Tiananmen Square bursting into violence. What began as peaceful protests were soon infused with violent provocateurs, and efforts at peaceful dialogue were sabotaged by thousands of Molotov cocktails and dozens of unarmed Chinese soldiers who were hanged and lit on fire. Needless to say, unlike the cases of Hungary, the Philippines, or Russia, this coup d’etat failed to achieve its goals. In the wake of this attempt at a color revolution, China’s leadership immediately removed Zhao Jiang from power, placed him under house arrest for life, and arrested his leading cohorts. China also lost no time shutting down Soros’ Open Society Foundations and banned the financial terrorist for life. With the vast assistance of Hong Kong triads, the CIA and MI6 arranged Operation Yellowbird, which funneled these Western provocateurs and Soros assets out of China, where many received luxurious rewards and scholarships at Ivy League universities in the USA, forming what the Washington Post’s Gavin Hewitt described as the nucleus of a democracy movement in exile.

At the end of World War II Asia and Europe were devastated, and the United States emerged as the last man standing, profiting hugely from the war. They ended up, due to isolation, the strongest economy in the world with more than half the world’s gold and half the world’s GDP, with standing industries that could shift from making tanks to making cars and trucks. They did extraordinarily well for a few decades, but then, as described, they began to financialize, and it became more profitable to speculate in investments than to actually invest. In recent years, companies with money often pursue share buybacks rather than expanding research and development or industrial capacity. We are in a stage where the underlying basis for markets is questionable: what are markets for, are they accurate at price discovery, and do they predict productive investment and returns on capital? We are in a transition phase where we’re not sure anymore. There is a huge bubble, and corporations creating these bubbles, with banks that loan money relying on the state because they are too big to fail. Bailouts have totaled trillions since 2008, as the US Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Japan pumped trillions of dollars, with help from Gulf Cooperation Council countries to bail out banks in Britain, the United States, and Europe. It’s fascinating because China, since the financial crisis, has also created about 17 to 18 trillion dollars. China has actually been leading in creation of money, while investing that money in building 50,000 kilometers of high-speed rail, a space program, massive industries, and the Belt and Road initiative—real investment and so on. The enormous difference between the two is notable, but how far can states—the United States, Britain, the EU, and Japan—borrow and pump money into the market to keep this bubble going? We don’t know. Bubbles are hard to gauge in terms of expansion and when they break, which is why they can be sustained so long; the bursting of a bubble is painful, and no policymaker wants responsibility. China is interesting and is the only case in history of a property bubble being deflated without collapsing the real economy, deflating its property bubble over five or six years while the economy continued to grow—not at 8% but at 5%—and continued to expand. That is worth studying because other countries let property bubbles run until they burst, causing wider harm and deflation. Japan, for example, has had thirty years of zero growth since it began quantitative easing three decades ago, a growth killer because it protected existing companies, banks, and properties and never really recovered. Europe has had zero growth for about fifteen years since 2007. The United States sustains growth largely by buying it from the rest of the world—acquiring profitable companies or getting them to list on NASDAQ and then earning rents from profitable companies wherever they are—while the US economy has been largely hollowed out. It’s an interesting time to watch monetary dynamics, because this doesn’t go on forever.

Sean Rein, author and founder/managing director of the China Market Research Group, discusses China’s current dynamics, opportunities, and global context with Glenn. Rein argues that China in 2026 is fundamentally different from China in 2016, with real estate, consumer confidence, and demographics as central challenges, but also with strong opportunities driven by indigenous innovation and a rapid reorientation toward self-reliance. On current challenges, Rein highlights real estate weakness as the primary concern: housing prices in top cities have fallen 30–40%, with slower property turnover and anemic transaction volumes. He distinguishes China’s situation from a US-style financial crisis, noting most homeowners have substantial mortgage equity (50–100% down) so there is no systemic panic selling. The result is stagnation rather than collapse, with consumer anxiety suppressing spending and delaying entrepreneurship. This consumer reticence, compounded by a large household savings stock (~$20 trillion) and a shrinking willingness to spend, threatens longer-term demographic goals (lower birth rates, delayed or avoided marriage) and complicates future growth. On opportunities, Rein emphasizes China’s shift toward indigenous innovation and self-reliance, a pivot that began under the Trump era’s sanctions regime and has intensified since. He argues that Chinese companies are now prioritizing technology—AI, semiconductors, NEVs, and broader green tech—alongside agriculture and food supply diversification (beef, soybeans, blueberries) to reduce exposure to Western import controls. He notes that Western observers often misread China’s trajectory due to outdated information from observers who left China years ago. He cites strong performance in Chinese equities (second-best global performance after Korea, up ~30% in a recent period) and asserts that Chinese tech firms (e.g., Alibaba, Baidu) are rapidly advancing, challenging passive stereotypes of China as merely a copycat. Rein also contends that China’s universities and talent pools are rising in global rankings, and that China’s approach to innovation now blends capital, government support, engineering talent, and an ecosystem that can outpace Western models that rely more on venture capital dynamics. On geopolitics and global leadership, Rein argues China is a natural partner with the United States, more so than with Russia, and that Western framing of China as an adversary is outdated. He contends that China’s strategy includes self-reliance in critical tech and a diversified supply chain—reducing vulnerability to sanction regimes by building internal capabilities and alternate sources. In energy and resources, China remains dependent on imports for oil (notably Iran as a major supplier) and is actively expanding renewables (wind, solar) and nuclear power, while securing strategic reserves to stabilize prices. He notes Europe as a potential beneficiary if it pursues reciprocity and deeper integration with Chinese markets, suggesting joint ventures and non-tariff barriers to ensure fair access for European firms, and criticizing European policymakers for hampering Chinese investment and technology transfer. On the US-China trade war, Rein calls tariffs a total failure overall, citing sectoral shifts in sourcing (China-plus-one strategies) but noting that costs often remain lower with Chinese imports due to tariff carve-outs and exceptions. He emphasizes that global supply chains have adapted to diversify away from single sources (China, the US, Brazil, Argentina, Taiwan, Vietnam), but asserts China still holds disproportionate leverage in critical areas like rare earths, refining, and certain energy and mineral markets. He argues that America’s coercive tools have backfired in many respects, and that Europe’s leverage lies in pragmatic, reciprocal relationships with both powers. Near-term outlook, Rein expects China to continue focusing on raising the quality of life for the large middle and lower-middle class, expanding access to health care and education, and creating a moderately prosperous society. He suggests that true wealth creation in China will come from within the middle 80–90% of the population, while a comparatively smaller elite may see gains in education and health services. He also notes that for individuals seeking the most dramatic financial upside, the United States (e.g., Austin, Silicon Valley) remains a more fertile landscape. As for his personal work, Rein promotes his book, The Finding the Opportunities in China and the New World Order, and mentions active presence on Twitter and LinkedIn, with possible future podcasting.

Mario interviews Professor Yasheng Huang about the evolving US-China trade frictions, the rare-earth pivot, Taiwan considerations, and broader questions about China’s economy and governance. Key points and insights - Rare earths as a bargaining tool: China’s rare-earth processing and export controls would require anyone using Chinese-processed rare earths to submit applications, with civilian uses supposedly allowed but defense uses scrutinized. Huang notes the distinction between civilian and defense usage is unclear, and the policy, if fully implemented, would shock global supply chains because rare earths underpin magnets used in phones, computers, missiles, defense systems, and many other electronics. He stresses that the rule would have a broad, not narrowly targeted, impact on the US and global markets. - Timeline and sequence of tensions: The discussion traces a string of moves beginning with US tariffs on China (and globally) in 2018–2019, a Geneva truce in 2019, and May/June 2019 actions around nanometer-scale chip controls. In August, the US relaxed some restrictions on seven-nanometer chips to China with revenue caps on certain suppliers. In mid–September (the period of this interview), China imposed docking fees on US ships and reportedly added a rare-earth export-control angle. Huang highlights that this combination—docking fees plus a sweeping rare-earth export control—appears to be an escalatory step, potentially timed to influence a forthcoming Xi-Trump summit. He argues China may have overplayed its hand and notes the export-control move is not tightly targeted, suggesting a broader bargaining chip rather than a precise lever against a single demand. - Motives and strategic logic: Huang suggests several motives for China’s move: signaling before a potential summit in South Korea; leveraging weaknesses in US agricultural exports (notably soybeans) during a harvest season; and accelerating a broader shift toward domestic processing capacity for rare earths by other countries. He argues the rare-earth move could spur other nations (Japan, Europe, etc.) to build their own refining and processing capacity, reducing long-run Chinese leverage. Still, in the short term, China holds substantial bargaining weight, given the global reliance on Chinese processing. - Short-term vs. long-term implications: Huang emphasizes the distinction between short-run leverage and long-run consequences. While China can tighten rare-earth supply now, the long-run effect is to incentivize diversification away from Chinese processing. He compares the situation to Apple diversifying production away from China after zero-COVID policies in 2022; it took time to reconfigure supply chains, and some dependence remains. In the long run, this shift could erode China’s near-term advantages in processing and export-driven growth, even as it remains powerful today. - Global role of hard vs. soft assets: The conversation contrasts hard assets (gold, crypto) with soft assets (the dollar, reserve currency status). Huang notes that moving away from the dollar is more feasible for countries in the near term than substituting rare-earth refining and processing. The move away from rare earths would require new refining capacity and supply chains that take years to establish. - China’s economy and productivity: The panel discusses whether China’s growth is sustainable under increasing debt and slowing productivity. Huang explains that while aggregate GDP has grown dramatically, total factor productivity in China has been weaker, and the incremental capital required to generate each additional percentage point of growth has risen. He points to overbuilding—empty housing and excess capacity—as evidence of inefficiencies that add to debt without commensurate output gains. In contrast, he notes that some regions with looser central control performed better historically, and that Deng Xiaoping’s era of opening correlated with stronger personal income growth, even if the overall economy remained autocratic. - Democracy, autocracy, and development: The discussion turns to governance models. Huang argues that examining democracy in the abstract can be misleading; the US system has significant institutional inefficiencies (gerrymandering, the electoral college). He asserts that autocracy is not inherently the driver of China’s growth; rather, China’s earlier phases benefited from partial openness and more open autocracy, with current autocracy not guaranteeing sustained momentum. He cites evidence that in China, personal income growth rose most when political openings were greater in the 1980s, suggesting that more open practices during development correlated with better living standards for individuals, though China remains not a democracy. - Trump, strategy, and global realignments: Huang views Trump as a transactional leader whose approach has elevated autocratic figures’ legitimacy internationally. He notes that Europe and China could move closer if China moderates its Ukraine stance, though rare-earth moves complicate such alignment. He suggests that allies may tolerate Trump’s demands for short-term gains while aiming to protect longer-term economic interests, and that the political landscape in the US could shift with a new president, potentially altering trajectories. - Taiwan and the risk of conflict: The interview underscores that a full-scale invasion of Taiwan would, in Huang’s view, mark the end of China’s current growth model, given the wartime economy transition and the displacement of reliance on outward exports and consumption. He stresses the importance of delaying conflict as a strategic objective and maintains concern about both sides’ leadership approaches to Taiwan. - Taiwan, energy security, and strategic dependencies: The conversation touches on China’s energy imports—especially oil through crucial chokepoints like the Malacca Strait—and the potential vulnerabilities if regional dynamics shift following any escalation on Taiwan. Huang reiterates that a Taiwan invasion would upend China’s economy and government priorities, given the high debt burden and the transition toward a wartime economy. Overall, the dialogue centers on the complex interplay of China’s use of rare-earth leverage, the short- and long-term economic and strategic consequences for the United States and its allies, and the broader questions around governance models, productivity, debt, and geopolitical risk in a shifting global order.

Mario: Markets crash every time there's talk of a trade war between The US and China. The world is waiting to see what happens between China and Taiwan. Will China invade? What will The US do? Today I spoke with professor Yasheng Huang. He was born in China; his father and grandfather were in the CCP; he is now a professor in the US after Harvard. We discuss the real economic situation in China, how a trade war would look over the next two to three years, and whether China will invade Taiwan. Mario: How are you, professor? Yasheng Huang: The official rationale is that it is not an export ban. It is a form of export control in which those who use the rare earth process in China are required to submit applications for using the Chinese rare earth process. If fully implemented, this would send shock waves globally because every electronic production uses rare earths. The threshold is set so low that virtually everybody has to submit an application. Civilian usages are claimed to be okay, but defense-related usages will be scrutinized or prohibited. The definition of civilian vs. defense-related usage is unclear. The missiles the US is supplying Ukraine, air defense systems for Israel and other allies, and equipment for Taiwan all require rare earths and magnets, of which China supplies a large majority. Mario: What would be the impact on The US if China proceeds with these restrictions? Yasheng Huang: It would amount to a sudden stop in the production of equipment and devices globally because rare earths are used universally in electronic production, from phones to computers. It’s not a sharp division between civilian and defense uses; the impact would be broad and significant, not well targeted. Mario: The timeline includes US fentanyl tariffs, a Geneva truce, halting five-nanometer chip exports, and later allowing seven-nanometer chips with limitations. Then China announced the rare earth move. Why did China take this step, and what is the strategy behind it? Yasheng Huang: The timeline is broadly correct, with mid-September adding US docking and stocking fees on Chinese ships. The rare earth move is not targeted specifically at the US; it targets any user of Chinese-processed rare earths. It appears aimed at pressuring ahead of a potential Xi-Trump summit later this month in South Korea. It’s a high-pressure tactic that may overplay their hand, given weaknesses in US agriculture exports and farmer distress. The move likely seeks to leverage leverage ahead of the summit, but it is not well tailored as a bargaining chip. Mario: It seems China is fighting the US more than most other countries. Do you think they overplayed their hand? Yasheng Huang: The rare earth export control is not tailored to the US and could prompt others to build processing capacity elsewhere, reducing China’s long-term leverage. In the short run, China has substantial bargaining power, given the short-term constraints in the US economy, inflation, and supply chains, but long-term effects include diversification of processing capacity by others, including Japan and Europe. The situation resembles Apple diversifying production after zero-COVID controls, which reduces reliance on China over time, though it takes years. Mario: Let’s discuss the economy. Some say China’s economy is weak now, with debt rising and productivity declining, though growth remains around 5%. How do you assess China’s economic health? Yasheng Huang: There’s a distinction between growth and productivity. Past predictions of collapse were wrong, but today China experiences economic strains. The debt-to-GDP ratio has risen since 2008, and incremental capital to output required for each percent of growth has increased. Productivity numbers trend downward; there is a large amount of waste in the economy—unwanted goods sitting in warehouses, overbuilding in housing, and high logistical costs. The academic view emphasizes that aggregate total factor productivity is negative, meaning inefficiencies outweigh gains from new infrastructure and devices. The result is an economy that is growing, but less efficiently, with structural strains. Mario: The debate around democracy vs. autocracy comes up here. Could you comment on the Chinese model and the contrast with democracy? Yasheng Huang: There is a distinction between ideal democracy and how it is implemented. The US system has flaws—senate gerrymandering, the electoral college, and political money influence—but China’s autocracy is not the sole driver of growth. Historical comparisons show that once China opened up under Deng Xiaoping, growth accelerated, and regions with less central control grew faster. Autocracy alone does not guarantee growth; in fact, per-capita income growth was higher in some less centralized regions during earlier reform periods. In this sense, the correlation between openness and growth is nuanced. The Chinese economy has benefited from less autocratic periods, and the long-term sustainability depends on governance and openness rather than simply the political system. Mario: And Trump’s strategy toward China? Yasheng Huang: The Trump administration elevated the prestige and legitimacy of autocratic leaders globally, but long-term economic balancing depends on how others respond. Europe may move closer to China if China’s Ukraine policy shifts, and if China revises its stance on Ukraine. European leaders see Trump as transactional and pursue pragmatic deals to safeguard economic interests. The global balance depends on actions by China and other nations, not only on US policy. Trump’s approach has created a shifting geopolitical landscape that could influence future alignments. Mario: Professor, this has been an incredible conversation. Thank you for explaining the trade war dynamics, rare earth restrictions, and the US-China strategic posture. Yasheng Huang: I enjoyed talking with you, Mario.

Housing prices and interest rates have doubled, making homes unaffordable due to large companies like BlackRock buying up properties. Nearly 30% of new home purchases are by investors, not individuals. This shift from ownership to renting erodes community ties and turns citizens into subjects. Homeownership fosters community involvement and care for neighbors, police, firefighters, and teachers.

China's property bubble has claimed its biggest casualty yet. Evergrande has been delisted from the Hong Kong Stock Exchange. It used to be the country's largest developer. Evergrande was buried under more than $300,000,000,000 of debt. It promised homes to millions of buyers but left behind empty towers and unfinished projects. It shattered confidence in China's property sector, and now the company is being liquidated. Evergrande's creditors face huge losses, and China's economy faces deeper troubles. The Hong Kong court had already ordered its liquidation last year. Evergrande was once China's largest developer. It is now the world's biggest property failure.

Evergrande, the world's largest property developer, has gone bankrupt, causing an 8% drop in indexes. This is part of a larger issue in China, where all public or listed property developers are facing default bankruptcy. China's economy heavily relied on real estate for growth, but now the sector is collapsing after an unregulated climb. The situation is comparable to the US financial crisis, but with three and a half times more banking leverage. China's regulators are trying to protect individuals from short sellers, but the situation is expected to worsen.

Speaker 0 argues that China’s economy faces a new threat described as involution, where prices are driven downward by competition rather than up. In many countries, governments complain when prices are too high; in China, the government is angry when prices are too low. Companies are cutting prices to gain market share, and this has forced others to follow, leading to a cycle in which profits plummet and no one gains lasting market share. The phenomenon is linked to aover supply, as many firms have been nurtured by local governments. This has helped certain industries become world-leading—such as solar panels and lithium batteries—but has also resulted in an oversupply of these goods with insufficient demand to meet the production capacity. One concrete example is the automobile industry, where there are now about 130 domestic car companies competing for sales. Discounting is so aggressive that an electric car, the BYD Seagull, can be bought for less than $8,000. While this may seem advantageous for households, the report cautions that profits have fallen, wage growth has stalled, and employment appears weak as a result. The piece notes that China has faced a similar issue before. About a decade ago, a long period of falling industrial prices occurred, and the government responded by cutting capacity in industries like steel and coal to curb production. That approach was crude but effective, leading to higher prices and increased profit margins. However, involution this time is more widespread and different in character. Several reasons differentiate the current involution from the past: many involved firms are privately owned, giving the government less direct control; the sectors affected are high-tech with modern facilities, unlike the older, more polluting plants targeted previously. An alternative strategy some have proposed is flooding foreign markets with goods, but partner countries are pushing back against this approach. Ultimately, the suggested remedy is to boost domestic demand rather than simply curb supply. The report emphasizes that the best response to falling prices is to stimulate demand so that production can be sustained without sacrificing profitability. The piece concludes by highlighting Xi Jinping’s commitment to viewing manufacturing as a core pillar of China’s economy. If customers remain hard to find, the leadership may need to engage in introspection to address involution, because manufacturing’s prominence in the economy is a foundational element of his vision for China.

In 1930, during the Great Depression, the average home was $39100, a car was $600, rent was $18 a month, and salary was $1300 a year. Today, the average home is $436,000, a car is $48, rent is $2,000 a month, and salary is $56,000 a year. Back then, a home was 3 times the salary, a car was 46% of the salary, and rent was 16% of the salary. Now, a home is 8 times the salary, a car is 85% of the salary, and rent is 42% of the salary. Translation: Comparing the Great Depression era to today, the cost of homes, cars, rent, and salaries has significantly increased, making housing, transportation, and living expenses a larger percentage of the average American's income.

A woman named Tiffany shared a video about private equity firms buying up single family homes. In 2023, these firms purchased 44% of all single family homes in America, potentially leading to them owning 60% by 2030. This trend threatens the middle class's ability to own homes, with future generations likely to rent from a few companies. Without reform, private equity firms could soon own the majority of single family homes in the country, posing a significant problem for all Americans.

By February, the Chinese countryside was bankrupt, and state enterprises were unprofitable. After NATO accidentally hit the Chinese embassy in Belgrade in May, Jiang Zemin stated that the Americans hate China and that China must build up its army and join the WTO without adhering to its rules. Bill Clinton apologized and allowed China to join the WTO. China's leadership has consistently opposed capitalism and aimed to maintain a socialist economy, repeatedly breaking promises regarding intellectual property rights, transparent governance, and the rule of law. China faced massive overproduction before joining the WTO, with large quantities of unsold goods stored in warehouses. After joining, China began dumping goods, enabled by the fact that factories were not allowed to go bankrupt. By February 2004/2005, reforms to the banking system and state enterprises were postponed indefinitely, with 96% of the largest enterprises controlled by party members. The speaker claims that communists allow a private sector only when needed, clamping down when it is no longer required. The rest of the world must buy China's overproduction or go bankrupt, incentivizing companies to establish factories in China.

China is currently experiencing a cultural revolution similar to the one in the past. The chairman's goal is to achieve common prosperity, which has led to the takeover of private industries and companies. Jack Ma, the CEO of Alibaba, was forced to retire and disappeared for a few months after criticizing China's regulators. There is a power struggle between different factions within the government. Chairman Xi changed the constitution to allow for unlimited presidency, and he is known as a hardcore communist. Many celebrities and wealthy individuals have become quiet and low-profile, as they fear disappearing or facing consequences. People still disappear in China, and there are secret prisons known as prisoners conscious.

During the Great Depression, houses were three times the average salary, while cars accounted for 46% of yearly income. Rent only consumed 16% of the annual salary. Today, however, houses are eight times the average salary, cars make up 85% of yearly income, and rent takes up 42% of the annual salary.

This isn't a recession. This isn't even a crisis in the traditional sense. What we're witnessing is the complete unraveling of the economic model that powered the world's second largest economy for four decades. And the West, we're completely unprepared for what comes next. For forty years, China's growth seemed unstoppable. Double digit GDP increases, gleaming cities rising from farmland, a manufacturing powerhouse that became the world's factory. Western corporations moved their supply chains there. Emerging markets tied their futures to Chinese demand. Everyone believed the twenty first century would belong to Beijing. But beneath the surface, something was fundamentally broken. The property sector that once drove 30% of China's economy has imploded. Evergrande, with its 300,000,000,000 in liabilities, was just the first domino. Country Garden followed, then China, South City. Now even state backed developers are failing.

Mario: Markets react to talk of a US-China trade war, with global attention on China-Taiwan risk. I spoke with Professor Yasheng Huang to discuss China’s real economy, what a trade war could look like in the next two to three years, and whether China might invade Taiwan. Mario: You describe the rare-earth export restrictions China announced as a major move. China refines roughly 90% of the world’s rare earths, mines about 70%, and controls a crucial supply for tech, AI, missiles, private and fighter jets. The official rationale is that the policy is an export control rather than an export ban; those using Chinese-processed rare earths must submit applications. Civilian usage is said to be okay, defense-related usage will be scrutinized or prohibited, though the definitions of civilian versus defense usage are unclear. The move, if fully implemented, would shock global supply chains since rare earths are embedded in almost all electronic production. Professor Huang: The policy could trigger a global production disruption because rare earths are used universally in electronics—phones, computers, and more. The threshold for needing approval is set very low, effectively implicating almost every user of Chinese-processed rare earths. The policy isn’t narrowly targeted at the US; it affects any user of the Chinese process. If fully enacted, it would be a broad economic shock. Mario: The timing follows a series of US actions: fentanyl tariffs on China around 10%, broader US tariffs on many countries including China in April, a Geneva truce for 90 days, and then May’s halting of five-nanometer chip exports to China. August saw partial relaxation, with seven-nanometer chips allowed but capped revenues from China for NVIDIA and AMD at 15%. Then mid-September, the US imposed docking fees on Chinese ships calling US ports, and China retaliated with a rare-earth move. Why did China take this step, and does it aim to pressure for a summit with Xi Jinping and Donald Trump later this month? Professor Huang: The broad timeline is accurate, though mid-September docking fees added asymmetry in favor of the US. The rare-earth move likely predated that, possibly prepared for a summit in South Korea. It’s not well tailored as a bargaining chip since it would affect many countries, not just the US. China may be signaling leverage ahead of a potential Xi-Trump meeting and reflecting tensions in agricultural exports—China has largely stopped buying US soybeans, causing farmer distress. The rare-earth policy is a high-pressure tactic that may overreach. Mario: You compare China’s stance to the US, noting that China seems to be pushing back more aggressively than other countries, and that this move could accelerate a shift away from US-dollar dominance toward hard assets like gold or Bitcoin, and toward domestic rare-earth processing in many countries. Could this be a long-term strategic disadvantage for China? Professor Huang: In the short term, China has substantial bargaining leverage in rare earths since processing capacity is scarce elsewhere. In the long run, the move is likely to spur other countries to build processing capacity, reducing China’s leverage. The analogy with Apple’s supply diversification after China’s zero-COVID policies shows such diversification will take time. If other countries build processing capacity, the relative power shift could occur over a longer horizon. The geopolitical calculus should consider timing: short-term gains may come at long-term costs. Mario: You discuss the difference between hard assets and soft assets like the dollar, and whether China’s move could motivate countries to diversify away from rare earth dependence. Could you expand on that? Professor Huang: Hard assets (gold) and soft assets (dollar credibility) differ in impact. Rare earth processing capacity is a hard asset-like dependency; diversifying away from China’s processing could reduce China’s leverage over time. However, short-term disruption is likely to be broad, since electronics’ reliance on rare earths is pervasive. In the long run, countries will build refining and processing capacity, making the West less dependent on China for these inputs. Mario: Turning to China’s economy, some critics warned of collapse in the early 2000s, but China grew. Now, growth is around 5%, though debt-to-GDP has risen and productivity appears to be slowing. How does Professor Huang reconcile these views? Professor Huang: The early-2000s collapse predictions were incorrect, but today China faces real strains. The debt-to-GDP ratio has risen since 2008, raising the incremental capital needed to generate each percentage point of growth. Productivity has trended downward; there is a difference between the business-executive view and the academic view. Executives see impressive factories and automation, while academics point to waste and overbuilding—factories producing goods no one wants, empty housing, and higher logistical costs. Net economy-wide productivity is negative, due to inefficiencies offsetting gains. Mario: You compare democracy and autocracy. Some argue China’s centralized, long-term planning works for growth, but Professor Huang notes that personal income growth in China was highest when the system was less autocratic. He argues Deng Xiaoping’s openness—less autocratic than today—drove significant growth, while Xi Jinping’s more autocratic leadership coincides with a growth slowdown. How does he view the balance between political structure and economic outcomes? Professor Huang: He distinguishes between ideal democracy and current practice, arguing the US system is flawed in ways that impede governance (gun control, healthcare, etc.). He notes that autocracy is not the sole cause of growth; historically, less autocratic or more open autocracies in East Asia grew more rapidly than more autocratic regimes. For China, the data suggest that more open regions grew faster than tightly controlled ones. The correlation does not support the idea that autocracy automatically delivers robust growth. Mario: Finally, you discuss Trump’s China policy. Trump’s transactional approach, allied with a perceived US weakness, has shifted dynamics. How will China respond if Europe leans toward China, and could Ukraine policy influence that? Professor Huang: Trump elevated autocracy’s legitimacy, potentially aiding leaders like Xi. Europe might move closer to China if China softens its Ukraine stance; however, the rare-earth move complicates that. Indian leaders understand Trump’s transactional approach, encouraging engagement to safeguard national interests. The global balance will depend on China’s actions and Europe’s response, with the Ukraine position remaining a critical factor.