$18 Trillion Crash: The Crisis China Simply Cannot Escape | Taiwan Just Embarrassed China

Añadido: 2026-05-04

[00:00:00]Happy Monday everybody. Welcome to another episode and a new week of China update where we discuss leading political, economic and geostrategic analysis on the world's number two economy. My name is Tony. There is a lot to discuss. Let's jump in. And first up, China's housing market is showing tentative signs of stabilization after literally years of decline with the pace of falling home prices slowing to its weakest level in nearly a year raising cautious hopes that the sector may be approaching a bottom. Others, however, warned that China's housing sector is still in for many more years of pain.

[00:00:33]And indeed, it is this year'slong crisis which will spell the end of China's high growth era. Data from the Beijing based National Bureau of Statistics shows that new home prices across 70 cities fell 0.21% in March, marking the second consecutive month of easing declines and the smallest drop in 11 months. Resale home prices also improved, slipping 0.24%, to 4%, their mildest contraction in a year. While still negative, the trend suggests that downward pressure in the property market is beginning to moderate. Now, these are official numbers, so we take them with a grain of salt, and some may indeed refuse to believe them entirely. But at the very least, even the official numbers show that the nation's housing market is still in decline. Of course, as we've been following for years now, the sector has been a major drag on China's economy, contributing to deflationary pressures and dampening consumer confidence. Local governments had rolled out targeted measures to boost demand, including easing home buying restrictions and reducing transaction taxes. In Shanghai, authorities have relaxed rules to allow more non-residents to purchase homes, while tax adjustments have lowered the cost of selling properties held for shorter periods. These moves appear to be drawing some buyers back into the market, particularly in the secondary or resale segment. Indeed, early signs of recovery are emerging in used home markets. Prices rose in 13 cities in March, the highest number in nearly 3 years. Beijing leading gains as existing home values climbed modestly following earlier policy easing. Some analysts believe major urban centers could lead a more broader recovery cycle. Goldman Sachs economists have suggested that cities such as Shanghai and Shenzhen may bottom out by late 2026 with other regions following over a longer time frame. Still, caution remains widespread. Ling, chief China economist at Namura, in a note published last week observed, quote, "We expect property distress to persist for a couple of years due to entrenched expectations, deeply interwined non-performing debt, and a lack of decisive policy solutions." End quote. Other analysts are even more dire, warning that actually what we are seeing is a small handful of major cities pulling up the national average and that large parts of the country still, as one analyst put it, quote, face years of painful decline and stagnation. End quote. Beacon University professor of finance Michael Pittis put the situation more diplomatically observing in recent days quote analysts point to new data raising hopes that the long belleaguered housing market may finally be nearing a bottom but I do not think it is helpful to look at the Chinese property market as a single market especially given the huge differences in local government indebtedness. property prices in the top regions where income levels are relatively high, government debt levels high but probably manageable and working populations growing, we may indeed be close to a bottom in the rest of China.

[00:03:33]However, we probably still have a long way to go." End quote. China's prolonged property downturn, now entering its fifth year, has left deep structural scars. The crisis has erased an estimated $18 trillion US in household wealth, trillion with a T. Because real estate accounted for roughly 90% of household wealth in China at the height of the housing bubble and now more like 70%. Even modest price declines have translated into enormous balance sheet damage for Chinese households. Estimates suggest that a 5% drop in home prices can wipe out roughly $2.7 trillion US in wealth. To put this in perspective, this is almost double what American households lost during their housing bust in ' 07 and08. In most areas, home prices have fallen sharply from their peaks, pushing millions of households into negative equity, where mortgage debt exceeds property value. Estimates suggest millions of homes could remain underwater in the coming years with one estimate at 3 to 4 million. Whether the worst of the decline may now be easing or whether much more destabilizing pain is on the way remains to be seen.

[00:04:45]Whatever happens, we will be following it all closely as it unfolds here on China Update. If you'd like to join the China Update community and follow along with us, we would love to have you on board. Consider subscribing to China Update. Hit the bell notification icon and you will be. Next up, China is in the midst of an electricity expansion unparalleled in modern history, building power systems at a scale that rivals entire national grids each year.

[00:05:11]According to the National Energy Administration, the country added a staggering 543 gawatt of new power capacity in 2025 alone, more than the total installed capacity of countries like India. Even more striking, the capacity China has added since the end of 2021 now exceeds the entire power system of the United States. This is not simply infrastructure growth. It is a strategic push designed to underpin the next phase of industrial and technological competition. Though, as we will see, while this is a massive push, it also comes with massive risks. At the core of this expansion is a clear policy objective under General Secretary Xi Jinping. ensure energy security, reduce reliance on imports, and provide abundant lowcost electricity to fuel emerging industries. Sectors such as artificial intelligence, robotics, and advanced materials are extraordinarily energyintensive, and Beijing appears determined to avoid the constraints now emerging in other major economies. In the United States, for example, electricity demand after decades of stagnation is surging again due to data centers and AI creating bottlenecks and tightening supply. China, by contrast, is building ahead of demand, or so the strategy goes. What makes China's approach particularly notable is its all of the above strategy. Solar power dominated additions in 2025 with 315 gawatt followed by 119 gawatts of wind and 95 gawatt of thermal capacity primarily coal and natural gas. Hydro power and nuclear contributed smaller increases. But both are central to long-term planning. Rather than choosing between clean energy and reliability, China is pursuing both simultaneously.

[00:06:56]scaling renewables at record speed while maintaining detachable sources to stabilize the grid. The surge is partly a response to the power shortages of 2021 and 2022, which we covered at the time here on China Update, which exposed vulnerabilities in China's energy system and triggered a policy shift. Since 2023, annual additions have averaged more than 400 gawatt, nearly triple the pace of the previous decade. The result is a system that is expanding faster than it can always effectively absorb.

[00:07:25]Rapid growth in wind and solar has at times overwhelmed transmission capacity leading to modest curtailment where available power cannot be used. At the same time, contradictions are emerging.

[00:07:36]Coal plants continue to be built yet their utilization rates are falling as renewable generation rises. Critics argue this reflects over capacity and inefficiency with some analysts warning that the continued expansion of unused thermal assets risks becoming economically irrational. Once again adding to China's massive growing debt pile. Another key issue is that not all capacity is equal. A gawatt of solar capacity generates far less electricity over a year than a gawatt of nuclear power due to intermittency. This reality is driving a parallel push for nuclear energy. China already operates around 60 reactors and has 36 more under construction, the largest pipeline in the world. Plans call for nuclear capacity to reach 110 gawatt by 2030, a roughly 76% increase, underscoring the importance Beijing places on stable, aroundthe-clock clean power. In addition, beneath the scale and ambition of China's energy buildout lies a growing economic risk. The rapid accumulation of debt alongside increasingly questionable productivity gains. Much of the expansion has been financed through statebacked lending to local governments and state-owned enterprises, adding to an already elevated debt burden across the economy, but especially at the local level. While the infrastructure itself is vast, the returns are becoming less certain, particularly as power utilization rates fall and some assets, especially coal plants, sit unused. The mismatch between capacity and actual demand raises concerns that capital is being deployed incredibly inefficiency, echoing broader worries about diminishing marginal returns on investment in China's growth model, a space we've been following closely these last few years on China update. Indeed, just today, Monday, Beijing agencies including the Ministry of Industry and Information Technology and the National Development and Reform Commission called for quote every effort and quote to strengthen capacity controls in the solar energy as the sector continues to struggle with excess production. The government has now met at least three times this year with uh solar equipment makers which are grappling with losses caused by overcapacity and fierce competition.

[00:09:40]That's worth reflecting on. Solar capacity is exploding in terms of what's being built while at the same time the companies that are producing these assets have seen a collapse in profits.

[00:09:51]Indeed, most are now no longer making money even though they are heavily subsidized by the state. If large portions of this new energy system fail to generate sufficient economic output, the result could be a drag on financial stability with rising debt servicing costs and weaker productivity undermining the very industrial competitiveness. this massive buildout is meant to secure. Now, next up, we have one more big development to cover, but just quickly, if you are getting some value from today's episode of China Update, don't forget to hit the like button. And if you'd like to help keep China Update financially sustainable, this is an independent channel that relies primarily on you, the audience, to keep going. It is just me making these uh every day, competing with Legacy Media and their massive corporate backers. Patreon and buy me a coffee links are in the description below. For everyone who supports the channel and helps me continue making these episodes every day, thank you so very much. As always, I simply could not do it without you. And finally for today, Taiwan is rapidly cementing its position as one of the biggest beneficiaries of the global artificial intelligence boom with AI demand reshaping the nation's economy, financial markets, and geopolitical importance in profound ways. Indeed, with its economy growing much faster than mainland China, a development some analysts have described as embarrassing for China. It both undermines Beijing's rhetorical claim that its socialist system is superior to Taipe's liberal capitalist democracy at creating economic growth, but also provides Taiwan with economic diamondism and fiscal space to arm itself against its much larger neighbor. At the core of this transformation is Taiwan semiconductor manufacturing company whose advanced chipmaking capabilities have made it indispensable to the world's leading AI developers including Nvidia, Apple, and major cloud providers. As AI systems grow more complex, demand for cuttingedge semiconductors, particularly at the 3 nanometer and emerging 2n nanometer levels has surged. TSMC has reported profit growth exceeding 50% and expects revenues to expand by more than 30% this year. Highlighting the scale of the AIdriven investment cycle, momentum is translating directly into Taiwan's broader economic performance. The government has dramatically upgraded its 2026 GDP growth forecast to 7.71% more than double earlier estimates, citing quote stronger than expected in quote AI infrastructure spending. Now, we remember that Taiwan is an advanced economy, a developed economy. This is not some emerging market. Achieving two to 3% growth is impressive. 7% is incredible. Export projections have also been r uh raised sharply higher with shipments expected to rise over 22% a reflection of booming global demand for AI chips, servers, and high performance computing hardware. Even with the crisis in the Middle East, Taiwan's export engine is now overwhelmingly tied to AI.

[00:12:45]Shipments surged nearly 70% at the start of the year, the fastest pace in more than a decade, underscoring how deeply integrated the economy has become in the global tech supply chain. This has propelled Taiwan's economy toward a historic milestone with GDP expected to surpass $1 trillion US for the first time. Financial markets are reflecting this transformation. Taiwan's stock market capitalization has climbed to roughly $4.14 trillion US, overtaking the UK to become the world's seventh largest. The Tyx index has reached record highs, extending a multi-year rally driven by technology stocks.

[00:13:21]Foreign investors who had previously pulled capital amid geopolitical uncertainty have returned in force, pouring billions back into Taiwanese equities and reinforcing the perception of Taiwan as a direct AI proxy for global investors. Beyond headline growth, AI is driving a powerful investment cycle. The SMC alone plans on up to 56 billion US in capital expenditure this year, part of a broader regional push that could exceed 130 billion US across Asia's semiconductor industry. And remember, this is one company. This spending is not just expanding capacity. It is reinforcing Taiwan's technological leadership and creating spillover benefits across its ecosystem of suppliers, equipment makers, and chip packaging firms.

[00:14:05]Geopolitically, Taiwan's central role in AI supply chains is elevating its strategic importance. As competition intensifies between major powers over access to advanced technologies, Taiwan has become a critical node in global economic security. A recently finalized trade agreement with the United States, reducing tariffs and boosting market access further strengthens this position, encouraging additional investment and deepening integration with Western tech ecosystems. Now, this is all good news, but the AI boom also introduces new vulnerabilities. Taiwan's growth is increasingly dependent on a single global trend, continued expansion in AI spending. Any slowdown in capital expenditure by major technology firms could quickly ripple through exports and industrial output. There are also emerging bottlenecks, including constraints in power generation, cooling infrastructure for data centers, and tight semiconductor capacity, which could delay orders and temper growth.

[00:14:58]Rising input costs present another challenge. particularly the current energy crisis are pushing up the price of key materials such as gases and chemicals used in chipmaking. While firms like TSMC have diversified supply chains, sustained cost pressures could erode margins and eventually feed through to global electronics prices.

[00:15:16]Domestically, the benefits of the AI boom remain uneven, too. While corporate profits and exports are surging, private consumption is growing more modestly, reflecting structural imbalances in the economy. This divergence raises longerterm questions about income distribution and the sustainability of growth driven so heavily by external demand. Even so, in an age where many developed economies are struggling to get 1 to 2% annual growth, these are all good problems to have. It is increasingly evident that Taiwan's economic future remains closely tied to the global AI revolution. The nation is no longer just a manufacturing hub. It is the backbone of the digital infrastructure powering the next phase of technological transformation. As long as demand for artificial intelligence continues to expand, Taiwan is likely to remain at the forefront of global growth, financial market performance, and geopolitical relevance. Of course, as we know painfully well, not just due to AI. Okay, that is today's episode of China Update. Thank you so much everybody for watching. Have a good Monday. Have a productive week. And I hope to see you for another episode of China Update tomorrow.