China, The New Japan - Will It Have The Same Fall? (Ep 107)
From trade wars to Taiwan, China’s rise is shaking the global economy—but can it keep up the pace? We break down its economic model, the cracks beneath the surface, and what it all means for your portfolio.
Transcript - The following transcript was generated with AI technology, so please excuse any typos or inaccuracies.
Brian Doe 00:01
Today we're going to talk about China. So much talk in the news, trade war, global economics and actual war. Today, we're going to break down the history of China's economic model and expose their vulnerabilities and give you tips to help your portfolio prosper. Stay tuned.
Speaker 1 00:26
It's time to make the dough rise. The financial podcast with Brian doe.
Walter Storholt 00:35
It's another episode of Make the dough rise. I'm Walter Storholt alongside Brian doe, of course, certified financial planner at living worth Wealth Advisors serving you throughout the lake country and beyond, with an office right in Greensboro, Georgia. But no matter where you are, we're glad that you've taken the time to join us on today's episode. Brian's going to bring his two plus decades of experience as a practicing, Certified Financial Planner Since 2013 all to the table on today's show, and looking forward to this one Brian, as we kind of dive in a little bit into some of these global politics and some of these global economic forces, seems like we've been dabbling into the global talk a little bit more often than normal over the last couple of I was
Brian Doe 01:13
just gonna say we've we've touched on this before and but as we're recording this, let me just kind of time stamp this episode, because a lot is happening and over the weekend. Today is Monday, May 12. It's about 1030 in the morning, and as we record, the news has broken out about a trade deal with China. Over the weekend. The markets are on fire here this morning last time I looked, anyway, and I don't know the details yet, so I'll be be curious to see what happens, but it'll be interesting to see how things shape out. Maybe this is much ado about nothing, and we'll get back to smooth sailing here. Last week, we had the major trade deal announcement with England, and I thought that was really interesting, because that also ties into a lot that we've talked about. It's the first major benefit that England has capitalized on since Brexit, and they had done a very poor deal of creating trade relationships and negotiations with the EU and the US Post Brexit, and hadn't really taken advantage of that. Now they were able to break away from the EU, create a deal directly with the United States and ally themselves, very, I would say, advantageously with us. So it's exciting times. There's good stuff happening, and we'll cover a lot of that today. Yeah, fantastic.
Walter Storholt 02:33
Looking forward to diving into all of that before we get into the meat and potatoes. How's life treating you? Otherwise it's going well,
Brian Doe 02:40
got all the kids on the mend with their surgeries, and they got finals coming up, AP exams, all that going on. And then hopefully we'll roll into a nice, relaxing summer.
Walter Storholt 02:51
Very nice to hear. I'm sure you'll have some fun updates for us on future episodes as we go through the summer. Looking forward to hearing all about that. Well, let's get down to business. Since there is so much happening and swirling all around us right now, Brian, as you said, literally lot of news over the weekend. We're recording this on May 12, 2025 and so you're probably listening to it just a few days later at its published time. So you know, who knows what's happened between now and that period of time, Brian, but certainly we've had some momentum, it seems, gaining in the markets a little bit, and take us through some of the context for today's conversation. Well,
Brian Doe 03:24
one thing I wanted to draw a focus on is China's economic model and the actual threat that they do or don't pose to us and to the global economy. And where I'll start is with Japan's history of economic development, and if you roll the tapes back to the 1940s post World War Two, Japan was in a very poor state. They did not have the big automotive industry. They weren't known as the bastion of top quality production that they are today, but they had grown in such economic dominance, most of the people listening to this podcast will recall in the 80s, everybody was running around saying, Oh, we're all going to be working for Japan. They had bought Rockefeller Plaza, and they were taking over everything, and they just looked like they were going to be so economically dominant, and then the reality of a pure export driven economy was exposed. If you're going to purely export and not buy stuff back from us, all we can give you is dollars, and at some point your capacity to deal with those dollars bursts out into we have to go buy something. And they came over and way over spent on real estate and global acquisitions. They grossly overpaid for other companies and high profile buildings and real estate sites and in the US. And then it really collapsed. Ops. And if you go back and look at Japan's growth trajectory, and particularly their stock market from the late 80s until maybe just, I would say, just a few years ago, their market ran flat for about 30 years. So there's great opportunity to build a foundation with this model. But at some point you have to grow up, open up to the world and become a fair trading partner. China has very much followed that model. And everybody thought, you know, that they would grow up and play nice one day. But they, I would say, they are a lot. They are looking a lot like Japan. Is in the was it in the late 80s? Okay, very economically ascendant, but a collapsing demography, so that Japan has a tremendous shortage of young people, and this heavy reliance on foreign markets consuming their products, well, China has had the most rapid industrial rise in history. It was Japan on steroids, and in 2030, years, they went from very poor post communist collapse type structure to this rapid industrial powerhouse. And the advantage that they had was lots of cheap labor, and they basically became the manufacturer for the world. But the whole time, they were never a true free, open market. They don't let their currency float. They don't let money come and go from the country easily. And that starts to distort and manipulate markets. And if they're not going to open up and play nice, we've let them in the World Trade Organization. We gave them most favored nation status. We've done all these things to really help China. But at the end of the day, they continue to just copy and steal intellectual property, designs, products, innovations. They make knock offs and resell them. And this is just it's gone on too long. And if you look at every major, successful Chinese company, it's a copy of a US counterpart, their Google, their Amazon, their eBay, you've got, you know, the, I guess, like Walmarts and and whatnot, or the the TEOs and chains of the world, Alibaba, you know, all the names. They're all just copies of the US. And if you have a closed and captive Society of a billion people, you can get away with that for a long time, but the the censorship and lack of access to the rest of the world, I think, is eventually going to, going to catch up with them.
Walter Storholt 07:53
With RiSE comes risks, right and challenges, and that's what we're seeing a lot getting exposed these days, as well as we kind of have this, this battle in this race with them.
Brian Doe 08:03
Yeah, they, I will give the Chinese credit. They do take a very long view. They've got these long strategic plans. And if you have one centrally run government and and party system, you can get away with that, as long as they're making the right decisions. The problem is, is eventually they start misallocating capital, or if they punish people who aren't delivering the results they want, there becomes a fear that grows. If there's incentives to lie or manipulate data to get access to resources, you're seeing a lot of that, I think, take place within their system. But the biggest problem they have was, for years they had the one child policy. And part of it was thinking, Gosh, we've got all these people. We can't afford to feed them this. We're just going to end up with forever starvation. And so they they implemented a one child policy where, you know, and enforced it, you know, very heavily. And if you think about it, demographic replacement, you need a birth rate of like, 2.2 or 2.3 2.4 per couple just to keep up replacement. Well, they cut that down to a collapsing rate of of one. And because of that, there was a desire for more males than females. You actually had infanticide against females, and so they have this very skewed population now that inverts. They have more old people than they do young people, and they have more males than they do females. And I don't know what you've heard Walter, but despite what you may hear in this country, men cannot have
Speaker 2 09:47
babies. This is true. Sorry, I just had
Brian Doe 09:51
to point that out sometimes. But anyway, they're very prone to if anything begins to go wrong. Well, you've had this, you know? Reliance on cheap labor, and if that advantage goes away, you maybe begin losing opportunities. You get people more prosperous and educated. They want more and better jobs. They don't they don't want to be working the same maybe manual type labor jobs that or agricultural jobs that their parents and grandparents had, and so there's some dissatisfaction amongst the youth. Then they've got other problems. They've had major real estate collapse over there, because the only real asset they were allowed to invest in was real estate. There are more houses in in China than there are people. And if the population is collapsing, that only spells one thing for the value of this property, or what they thought was was their investment. They have currency controls. There's tremendous silencing of billionaires or the prosperous that are opposed or have in any way expressed any dissatisfaction with the the political party, and that the number one case is Jack. Ma, you remember Jack? Ma, don't you? Yeah, remember that? So, great guy, very involved in tech and but he was, he was speaking up a lot with some opinions about maybe China, the economic model. They were following the politics. And suddenly he got a talking to and just sort of dropped off the radar around the world. And last I heard, he was giving talks at elementary schools and is very much out of the limelight. Other billionaires have not been so lucky. They've they've actually just disappeared. So my point is, is they, they are not a capital friendly place. If, if you are not going to be a, you know true free economic flowing, you know, money moving in and out, free floating currency, you're just, you're not going to attract global capital like the US does. Then the other thing is, is we're seeing a lot of changes in indicators and metrics coming out of China, and they've basically stopped reporting statistics, right? So if everything's good, economic growth is great, and they report it, but all of a sudden you are not seeing youth unemployment rates reported, soy sauce production, it was dropping, and they quit reporting that school bathroom designs and numbers of stalls and school bathrooms the population was actually revised down by 100 million something in China is is not what it appears. It
Walter Storholt 12:41
opens up the eyes a little bit to try and understand all these different indicators, and the fact that you've got to kind of take some of these things with a grain of salt, right? Because we don't have kind of the free media that we're going to see in the United States, and so you have to, can kind of take every piece of information that's coming from China with a bit of a grain of salt. Well,
Brian Doe 12:58
you have to be concerned when there's not transparency, you know, you have some opacity with what is being reported there. They don't follow our accounting rules. They don't have the SEC out making sure the financial data coming out is up to snuff. And when the government is control of the statistics, they can publish or not publish what they want. But it's just, it's telling you have to read between the lines, I guess, and say if they're if they've stopped reporting the data, why is that? Because it's probably not very favorable. So I don't know that for sure. I'm just guessing that that would be the case.
Walter Storholt 13:35
Interesting. So where does that take us, as you kind of continue to look at some of these challenges, both the rise and now these risks that they're facing. Well,
Brian Doe 13:44
the geopolitical risk is the one that everybody likes to talk about as well. You're from another angle, Taiwan, right? That's that's the big one, China, Taiwan. I don't want to go into the long history of how Taiwan separated out from from China, but basically, it was a bunch of dissidents from the, I guess, the cultural Mao's Cultural Revolution area. They wanted a more free economic and political system. So Taiwan was created. It's never really been recognized as a country, because China has always claimed it as a, I guess, maybe a renegade colony, or something like that outpost. And there's always been talk that China intends to retake Taiwan, much like they did Hong Kong. Well, they've had the war games going forever. I was actually in Taipei in 1996 and it was, oh, they had the ships out in the waters and firing missiles and doing and that stuff's been going on forever. And, you know, I don't know that it turns into a hot war. I think you would actually have to look at something like Hong Kong. And I was, I was in Hong Kong in 1997 for the turnover, you know, back to to China. Yeah, and if you if you look at the trajectory of what's happened in in Taiwan, it was not a hostile, aggressive, you know, takeover. They just very slowly crept in, and the lease was up with Britain that that was the main reason they had the opportunity to take it back and they let the pro democracy and the Western laws all stay on the books for about they said they were going to leave it alone for 50 years, but by 25 years in, they had pretty well rooted out any opposition, and they'd gotten pro Chinese people into key positions. They really kind of come in from the inside out to do their takeovers. They do not have a strong history of imperialist invasions, hot wars and things like that. So if war actually broke out and you had some kind of true existential threat to China militarily. You know, things could could go nuclear, and it's not going to end well for for anybody. But for Taiwan, there's two things there that pose the big opportunity and problem, semiconductors and democracy. And there was general consensus back in 97 that, oh, now that China had Taiwan, or China had Hong Kong back. Oh, it was for it was just a matter of time. It was sooner, rather than later, that Taiwan would become part of China. And had one of the professors there, who was, he was an Indian guy from Australia that taught one of the universities there, and he said, The Taiwanese are not at all interested in joining back with China. They have democracy, they have a free society. They are not interested in giving up. And they're going to put up a bigger fight than people might think. And then the semiconductors that would be a great capability for China to have, but the simple fact of the matter is, is China does not have the engineering capability to run and produce those semiconductor factories that are there. So if it was a true hostile takeover, and they bombed everything and made enemies out of the people who are producing the semiconductors. They're going to flee, and China is going to be left with basically the same capabilities in that sector that they have today. It's interesting. It gets a lot of talk, but I don't think there's that much there. And we're seeing more semiconductor manufacturing coming back to the to the US. So I think if you take the semiconductor manufacturing capability from Taiwan and move it to the west, you've basically got problems solved.
Walter Storholt 17:53
That's nice. And that leads to, I guess, kind of a conversation of, you know, how does the US play into this equation as more attention kind of gets turned inward to the US and in various facets, you know, how are we shaping up in some of these areas? Or where do you see our edges in some of these things?
Brian Doe 18:11
Well, it's interesting. I had a good friend who was at a Cyber Conference and security and protection type event the other day, and man, he came out of there just scared to death. He's like, Oh, China could shut down our grid, and they could hack into all of our computers, and then they take over all this stuff. And maybe, so I would argue, maybe we could probably do the same thing to them. But the to me, the actual threat is in the cyberspace more so than the geographic space. But think about it for a minute. If you had the if China did shut down the energy grid here, I mean, that would be paralyzing and in chaos, but also an act of war. If you had an actual act of war, China is very, very vulnerable in two places, energy and food. Well, it just so happens that that's one of the US is great strengths and key advantages. And so let's, let's just say that China, did you know do do something like that to attack or provoke the US? Two things would shut things down very quickly. In in China, you shut off the oil shipments coming from Russia that kept coming all the way around the through the West to get to China or coming out of the Middle East. You shut down the Red Sea and the Straits of Malacca. They're going to be starved for energy real fast if we're providing exports of food and Brazil and other western countries that are big exporters of food and grains to China, cut those off. It's not long before you have a dark. Cold and very hungry China, and that is not going to be a very favorable position for them to operate from. So my conclusion is very, very pro America. Let's quit whining and complaining and talking about all these, these great threats. America literally can do whatever it wants, if it sets its mind to it. And we've got 10s of millions of people wanting to migrate here, arguably, maybe billions. And if you would set up a good legal work and immigration system like Canada or Australia has done, they've got great models for that, and you can bring in plenty of workers and younger people to continue to grow this country. That's one of the other great advantages the US has, is our demographic collapse is nowhere near what it is in Europe and Russia and China and some of these other countries. And then as far as investments. If this trend continues, and we do see the repatriation of capability, increase of manufacturing, build out of semiconductors, artificial intelligence and robotics, aim your investments there. That's that. And that's my big takeaway. Quit worrying about is Baidu going to be the, you know, gonna have a pop is the post COVID growth story for China? Just the information is all bogus. We have no idea that. You know, they're not playing fair. So let's hope this tariff war that Trump started is actually a temporary and negotiating tactic to dislodge the unfair practices that China has been engaged in and give people incentives to bring the higher tech smarter, like I said, robotics and AI and semiconductor industries back to the US. I think there's no upper limit to what we're capable of when you pair that with our abundant, cheap energy ability to more than feed not just the population, but create parts of the world, and then geographically, our transportation infrastructure, nobody can compete with it. So to me, the story is the US, not Europe. Yes to Britain, yes to Japan, yes to Southeast Asia and India will be the interesting one. So those are my takeaways.
Walter Storholt 22:32
Always giving us things to keep our eye on and watch Brian and I definitely appreciate it. And if you find yourself trying to make sense sometimes of what's happening in the financial world and how it relates to your own portfolio, your own financial plan, you can always take better control of your financial future by reaching out to Brian doe, tenured, Certified Financial Planner with more than 20 years of expertise. Let him be your trusted partner through the planning process. Brian is a certified financial planner professional meets all the highest standards of training and ethics always putting your best interests first. If you'd like to, you could take advantage of a complimentary 15 minute call with Brian to gain clarity on those financial goals and prepare for a more secure tomorrow. Don't miss out on the opportunity to do that, especially in today's tumultuous Financial Times with so much in the news, you can go to living worth.com and click book a call that's living worth com, click book a call. Or you can call 706451 9800 that's 706451 9800 Well, Brian, great episode today. Thank you for all the help, and can't wait to catch up with you and connect again soon. Sounds great. We'll look forward to it. Alright. Sounds great. That's Brian of Walter. We'll see you next time, right back. Next time, right back here on make the dough rise.
Speaker 3 23:55
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Ben George 24:34
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