China’s property market continued its slump in November as home prices, sales, investment, and construction all fell on weak demand amid Evergrande’s debt crisis

China property Evergrande
China’s property sector continue to slump in November.

  • China’s new home prices fell 0.3% month-on-month in November, the biggest decline since February 2015.
  • Official statistics show home sales by value slumped 16.31% in their fifth month of declines.
  • The low demand was despite measures taken by some cities to boost transactions.

China’s property market suffered more headwinds in November, with home prices, sales, investment, and construction all falling, weighed by weak demand and a cash crunch among developers.

New home prices fell 0.3% month-on-month in November, the biggest decline since February 2015, according to Reuters calculations based on data released by the National Bureau of Statistics (NBS) on Wednesday. That was worse than the 0.2% drop in October.

Only nine of 70 cities tracked by NBS saw monthly price gains in November, the fewest since February 2015, according to Reuters calculations.

In a separate NBS statement, home sales by value slumped 16.31% in their fifth month of declines, pointing to gloomy demand despite measures taken by some cities to boost transactions.

“Cities of all classes are under pressure,” said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institution.

“The current scale of market supply is large and demand is weak. The key is to accelerate inventory de-stocking to stabilise home prices.”

China’s property sector has been grappling with tighter regulations this year, including curbs on bank lending and limits on how much property developers can borrow amid growing financial woes.

Last week, China Evergrande Group and another major developer, Kaisa, missed payment deadlines on their offshore bonds, prompting Fitch to downgrade the companies to “restricted default” status. 

New home prices have dropped in 64 of 70 cities so far this year, according to Reuters calculations.

For the supply side, new construction starts as measured by floor area tumbled 21.03% on year in November, down for the eighth month, while property investment by developers fell 4.3%.

“Due to the dual impact from the cyclical slowdown and (government) policies, coupled with the debt crises at some developers, the property shock is yet to pass, but with a good policy response, systemic risks can be avoided,” said Zhang Yi, chief economist at Zhonghai Shengrong Capital Management.

Supportive measures

China’s top leaders said “houses are for living in, not for speculation” during an agenda-setting meeting on Friday. They also pledged to promote the healthy development of the property market and better meet the reasonable demand of home buyers. 

“The Central Economic Work Conference has set the tone of stabilising growth for next year, so we believe that as government policy kicks in, economic growth in the fourth quarter and first quarter of next year would bottom out and rebound,” Zhang said.

At least six cities have introduced measures to boost home purchases since November, including providing subsidies or deed tax reductions, local media has reported.

Unsold housing stock in China’s 100 biggest cities rose to the highest level in five years in November, according to a private sector survey last Friday. 

New home prices dropped 0.4% month-on-month in tier-two cities and 0.3% in tier-three and four cities, compared with zero growth in tier-one cities last month.

S&P ratings agency expects the property downturn to persist on the back of credit tightening and restrictive policies in the sector, potentially leading to a 10% decline in nationwide residential sales next year.

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Starbucks closes 2 stores and launches a full inspection of all 5,400 outlets in China after a report that staff used out-of-date produce

A staff member serves a customer at a Starbucks Coffee house in Beijing
A staff member serves a customer at a Starbucks Coffee house in Beijing

  • Starbucks is inspecting all 5,400 China stores after staff in two outlets reportedly used expired food.
  • Beijing News’ undercover report said staff used expired matcha liquid and sold old pastries, per Reuters.
  • Starbucks apologized in a Weibo post, saying it has closed the two stores being investigated.

Starbucks said on Monday that it has launched a full inspection into all 5,400 stores in China after a state-backed newspaper said that staff in two of its outlets had used expired ingredients.

Beijing News said on Monday it had carried out an undercover investigation at two Starbucks stores in Wuxi City in eastern China and found that staff were using out-of-date ingredients, Reuters reported.

A server at one of the Starbucks stores used expired matcha liquid to make lattes, according to the report.

At the other store, old pastries, which were supposed to be thrown away, were put on display for sale, the report said.

Starbucks apologized for the incidents in a Weibo post, and said that it has closed the two stores for investigation, according to the newswire. 

The company reportedly confirmed in the post that employees in the two stores in Wuxi violated operating regulations.

“We sincerely apologise to all of Starbucks’ customers,” the company said in a statement on its Weibo account, per Reuters. Starbucks added in its apology that the company had not paid enough attention to food safety standards.

Reuters reported that Wuxi’s Market Supervision Administration said in a statement on Monday that following its investigations into the two stores, it had also inspected all of Starbucks’ 82 stores in the city.

Across these stores, the agency discovered 15 problems, including unfinished disinfection records and staff not wearing their work hats, per Reuters.

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A Chinese military drill could turn into full-scale attack, Taiwan warns

Taiwan China amphibious landing military exercise
Taiwanese troops during an exercise simulating an attempted amphibious landing by Chinese forces, May 30, 2019.

  • Taiwan’s Defence Ministry has presented possible scenarios for an all-out PLA assault, citing “Beijing’s goal to invade by 2025.”
  • The Ministry says China’s military could use one of its frequent drills near Taiwan to launch an assault on the island.
  • The ministry has studied PLA tactics for years and says it has “full control over the strength and the weakness of their approaches.”

Mainland China may stage a surprise attack on Taiwan by turning its joint drills close to the self-ruled island into full-scale combat operations, the defence ministry in Taipei has warned.

Such a move would be in keeping with Beijing’s goal to invade Taiwan by 2025, according to a ministry report submitted to the Taiwanese legislature.

The report said the mainland Chinese People’s Liberation Army was likely to use multipronged approaches to launch a full-blown attack, including joint strikes and landing operations, to seize Taiwan in the shortest time with minimal losses.

The report, which was worked out in line with Defence Minister Chiu Kuo-cheng’s assumption in October that the PLA would have the ability to mount a full-scale invasion by 2025, urges the legislature to support weapons procurements to counter such aggression.

China amphibious tanks invasion
Chinese amphibious tanks land on a beach during a Sino-Russian military exercise in China, August 24, 2005.

The PLA might first use the pretext of staging joint war games involving its air force, navy and army on the east and south coasts of mainland China near Taiwan, to step up the intimidation factor for the Taiwanese public, the ministry said in its report.

“It will then send various kinds of its warships to the Western Pacific Ocean as a means to repel any foreign forces coming to Taiwan’s aid, and to impose strategic encirclement to discourage foreign forces from coming to help.”

The PLA would then turn its war games into real combat operations, which would include firing ballistic and cruise missiles at various Taiwanese air-defence positions, radar stations and command centres, the report said.

The mainland army’s strategic support force would also launch electromagnetic suppression operations targeting combat troop movements and important Taiwanese military facilities.

Once it had established sea and air supremacy, the PLA would then dispatch amphibious landing ships, transport planes and helicopters for troops to attack important military bases in Taiwan, the report says, adding the PLA would try to launch its operations in the shortest time possible, before the interference of foreign forces.

The report called on Taiwanese lawmakers to support the ministry’s special budget to acquire a variety of arms to strengthen its “air defence, counter-attack, air-control and sea-control” missions in order to repel the PLA aggression.

The island’s cabinet last month approved an additional defence budget of NT$237.3 billion (US$8.54 billion) to improve air and naval capabilities, including shore-based anti-ship missiles, land-based anti-aircraft systems, and attack drone projects.

Taiwan soldier shore beach landing amphibious exercise
Taiwanese soldiers conduct a shore-defense drill during a military exercise, September 16, 2021.

Taiwanese deputy defence minister Wang Hsin-lung said the ministry had devoted years to researching possible PLA invasion approaches.

“We have full control over the strength and the weakness of their approaches,” he said before the legislative session on Monday. Taiwan’s military included various scenarios in its training plans for troops based on its study of possible PLA operations, Wang said.

The PLA’s weaknesses included inadequate transport and logistic capacities, the ministry report suggested, which would make reinforcements and supplies difficult after landing in Taiwan.

The PLA would not be able to land all its forces in one go and would have to rely on non-standard ships that would need to use port facilities and transport planes that would need to take off from airports.

Given the island’s forces strengthening defence of ports and airports, the PLA was likely to find it difficult to occupy those facilities in a short time, making their landing operations highly risky, the report said.

The island’s military could also use its geographic advantage in the Taiwan Strait to intercept PLA operations and cut off their supplies, which would reduce the combat effectiveness and endurance of their landing forces.

The US and Japan had military bases close to Taiwan, and any PLA action would be closely monitored, the report pointed out. The PLA would also need to reserve some of its power to deal with possible intervention from foreign forces.

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The US cut a Taiwanese minister from a video feed after she displayed a map showing her country as separate from China

Map of Taiwan at the Summit for Democracy
Audrey Tang speaking at the Summit for Democracy. Labeling by Insider.

  • A Taiwanese minister displayed a map showing Taiwan and China in different colors at Biden’s democracy summit.
  • Several minutes later, when she spoke again, video feed of her presentation was cut.
  • Sources told Reuters it was deliberate. The State Department said it was a technical error.

A Taiwanese minister was cut from a video feed of President Joe Biden’s democracy summit minutes after she presented a map showing her country as separate from China.

The State Department blamed a technical error, though Reuters reported, citing sources, that it was deliberate.

China insists that Taiwan is part of the country, whereas Taiwan, which has been self-governing for decades, is fiercely opposed to the idea.

Speaking by video link as part of the Summit for Democracy on Friday, Taiwan’s digital minister, Audrey Tang, presented a map showing countries ranked by civil rights as part of a “digital authoritarianism” discussion.

The map, created by the CIVICUS nonprofit and which appeared on screen for about a minute, showed Taiwan marked in green, meaning it was “open,” whereas China was marked in red, meaning “closed.”

When the moderator returned to Tang about 20 minutes later, she was heard only on audio, with a visual placeholder reading “Minister Audrey Tang, Taiwan.”

Shortly after, a disclaimer appeared on the video feed, saying: “Any opinions expressed by individuals on this panel are those of the individual, and do not necessarily reflect the views of the US government.”

Watch her presentation of the map around the 4-hour, 24-minute mark, and the moment where only her audio appears around the 4-hour, 45-minute mark:

Reuters reported, citing a source familiar with the matter, that US officials were spooked by the map and worried that it appeared to show US as separate from China.

As a result, White House officials then told the summit’s producers to make Tang’s feed audio-only, Reuters reported.

“They choked,” the source told Reuters, referring to the White House.

“It was clearly policy concerns,” another source told Reuters. “This was completely an internal overreaction.”

However, US officials denied that the feed was cut deliberately. The White House and State Department did not immediately respond to Insider’s request for comment.

The State Department told Reuters it was “an honest mistake” caused by “confusion” over screen-sharing. The White House National Security Council also told the outlet it was caused by confusion.

However, according to Reuters, the NSC had sent multiple emails to the State Department over the issue and that the White House later complained to Taiwan. Taiwan responded by saying it was angered that Tang’s video was cut, Reuters reported.

But Tang told Reuters: “No, I do not believe that this has anything to do with the … map in my slides, or US allies in Asia for that matter.”

President Joe Biden seen the virtual Summit for Democracy in Washington, DC, on December 10, 2021.
President Joe Biden seen the virtual Summit for Democracy in Washington, DC, on December 10, 2021.

In recent weeks, the Biden administration has tried to avoid committing to whether it supports the notion that Taiwan is independent of China, so as to not upset Beijing. China’s aggressive posturing toward Taiwan, meanwhile, has increased in recent months.

In October, Biden appeared to suggest that the US would defend Taiwan from an attack by China, prompting the White House to clarify hours later that the US policy of “strategic ambiguity” had not changed.

And in November, Biden hinted, then appeared to retract, support for Taiwanese independence, prompting Chinese President Xi Jinping to tell Biden during their meeting that he was “playing with fire.”

Later that month, China told Biden that inviting Taiwan to his democracy summit was a “mistake.”

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Ray Dalio says China is winning the economic race against the US, as the billionaire investor doubles down on controversial stance

Ray Dalio
Ray Dalio founded the hedge fund Bridgewater Associates.

  • Billionaire investor Ray Dalio has said China is winning the economic race against the US.
  • The hedge fund titan told the BBC that China would likely become “stronger in most ways.”
  • Dalio has caused controversy for his remarks on China, drawing criticism from Senator Mitt Romney.

Billionaire investor Ray Dalio has said China is winning the economic competition against the US, doubling down on his controversial stance on the country.

Asked on the BBC’s “Newsnight” program Thursday whether China was beating the US, Dalio said: “Yes, it’s winning.”

He added: “Their growth rate at a slow level is about twice the Western world’s growth rate at a fast level.”

The hedge fund titan also predicted the Chinese economy would overtake the US in size to become much more powerful.

“[China is] four times the size population-wise [than] the United States,” he told the BBC. “So if its per capita income was half the size, the [economy] as a whole would be twice the size.

“So yes, that’s the character of the environment where it’s winning and it has a lot more likelihood of being much larger, stronger in most ways.”

Dalio founded, and is now the chief investment officer of Bridgewater Associates, the biggest hedge fund in the world. His net worth is $20 billion, according to Forbes.

The famous investor has waded into controversy over China, with critics accusing him of ignoring the human rights issues in a country in which he has significant financial interests. The Wall Street Journal has reported that Dalio recently raised $1.3 billion for its third China fund.

Dalio found himself in the spotlight last month after likening Beijing to strict parents, when asked by CNBC’s Andrew Ross Sorkin about the country’s human rights record and the disappearance from public view of tennis player Peng Shuai.

Senator Mitt Romney said Dalio’s “feigned ignorance of China’s horrific abuses and rationalization of complicit investments… is a sad moral lapse.”

Dalio later said he was misunderstood and that he took China’s human rights record into account when investing there.

Read more: Ray Dalio predicts there’s a 30% chance the US will break out into civil war in the next 10 years

China’s economy has grown almost 10% a year on average since Beijing carried out major reforms in the late 1970s, lifting more than 800 million people out of poverty, according to the World Bank.

China’s gross domestic product in dollar terms is around $14.7 trillion, whereas that of the US is $20.9 trillion, World Bank data shows.

Yet there are clouds on the horizon, with highly indebted property developer Evergrande teetering on the edge of default and a falling working-age population.

Dalio told the BBC that he believes the collapse of Evergrande is being dealt with in a “healthy” way and that it will be good for the Chinese economy for the government to curb property speculation.

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Taiwan, the world’s biggest chip-maker, just set up a new trade framework with the US amid tensions with China

Flags of Taiwan and the United States are seen placed on a table.
Flags of Taiwan and the United States.

  • The US and Taiwan have committed to supporting supply chains for chips.
  • The framework comes amid heightened tensions between China and Taiwan.
  • US defense official Ely Ratner said Taiwan’s free-market economy is “integral” to the world.

The US and Taiwan have set up a new trade and investment framework as the island’s tensions with China escalate.

The Technology Trade and Investment Collaboration (TTIC) framework was announced in a December 6 call between US Commerce Secretary Gina Raimondo and Taiwan’s Minister of Economic Affairs Wang Mei-hua. The TTIC’s goal is to develop commercial programs and to strengthen critical supply chains, according to a press release from the US Department of Commerce.

In the call, Raimondo and Wang “committed to identifying other steps to support semiconductors and other critical supply chains.”

“Working together, we can build business connections and generate further investments which will ultimately create good-paying jobs, strengthen critical supply chains, and deepen our overall economic relationship,” Raimondo said in the call.

The partnership comes amid escalating tensions between China and independently governed Taiwan, which Beijing views as a breakaway province. China’s air force has been entering Taiwanese airspace frequently in recent months and staging military exercises near the island, prompting fears of a military conflict.

On Wednesday, Assistant Secretary of Defense Ely Ratner told the Senate Foreign Relations Committee that “bolstering Taiwan’s self-defenses is an urgent task.” Ratner referred to China’s actions as “destabilizing” and “intentionally provocative,” according to a transcript of his statement.

Taiwan’s free-market economy is “integral” to the world, added Ratner.

“Indeed, our economy — like many others around the world — has come to count on Taiwan as a critical supplier of high-technology, including semiconductors,” said Ratner.

Taiwan is the world’s largest semiconductor producer, with one firm — TSMC — accounting for over half of the global supply of made-to-order chips. In a July earnings call, TSMC chairman Mark Liu addressed fears over a potential invasion of Taiwan.

“Everybody wants to have a peaceful Taiwan Strait. Because it is to every country’s benefit, but also because of the semiconductor supply chain in Taiwan, no one wants to disrupt it,” Liu said, according to a transcript of the earnings call.

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A Chinese government spokesperson said the US committed ‘evil crimes’ against Native Americans in a bid to counter reports of genocide in Xinjiang

Chinese spokesperson Zhao Lijian is seen in front of a Chinese flag at a press conference
Chinese spokesperson Zhao Lijian speaks at a daily media briefing in 2020.

  • A Chinese spokesperson railed against the US’ diplomatic boycott of the Winter Olympics.
  • The US had announced the boycott in response to Beijing’s “ongoing genocide” of the Uyghur minority.
  • Zhao Lijian fired back by accusing the US of committing “evil crimes” against Native Americans.

China’s foreign ministry spokesperson Zhao Lijian lashed out at the US on Tuesday for its diplomatic boycott of the Beijing 2022 Winter Olympics, saying that allegations of genocide — which China faces over its treatment of the Uyghur minority in Xinjiang — “fits the US better than anyone else” for its treatment of Native Americans.

“The US has been fabricating the biggest lie of the century about so-called ‘genocide’ in Xinjiang, but it has long been debunked by facts,” Zhao said, though he declined to specify what facts.

He said the diplomatic boycott, which the White House announced on Monday citing “ongoing genocide and crimes against humanity” by Beijing, is based on “ideological biases as well as lies and rumors.”

Zhao denounced the US for committing “evil crimes” against Native Americans and said that the boycott “gravely violates” the political neutrality for which the Olympic Games are known.

He said US officials hadn’t even been invited to the games in the first place, repeating a similar statement he made earlier this week when rumors of the boycott began to surface.

“The US political agenda wins no support and is doomed to fail,” he added.

Australia, the UK, and Canada have since joined the US in the boycott, which will still allow their athletes to compete while their diplomatic representatives stay home.

Other Chinese diplomats have ridiculed the US boycott, saying President Joe Biden was “flattering himself” to assume US officials had been invited to the Winter Olympics.

Zhao has consistently decried frequent reports that China has been detaining hundreds of thousands of Uyghurs and people from other Muslim minorities in Xinjiang, breaking up families, and attempting to erase their cultures and religious loyalty. Many Uyghurs have been forced to work in labor camps picking cotton.

On Wednesday, Congress passed the Uyghur Forced Labor Prevention Act with a vote of 428-1, imposing economic sanctions on China for all goods produced by forced labor in Xinjiang.

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Milestones with 2 new planes show the US and China trying to improve on the same important mission

MQ-25 Stingray refuels F/A-18 Super Hornet
An MQ-25 Stingray refuels an F/A-18 Super Hornet.

  • The US and Chinese militaries recently hit milestones with tanker aircraft both are developing.
  • The aircraft are radically different — one an cargo plane and the other an unmanned aircraft.
  • But both will refuel aircraft and extend their range, a crucial asset for operations in the Pacific.

New refueling aircraft in development with the US and Chinese militaries hit important milestones in recent weeks, demonstrating both militaries’ focus on long-range operations, a vital capability in the vast Pacific.

On November 28, a Y-20 aerial-refueling plane was one of 27 Chinese military aircraft to fly into Taiwan’s air-defense identification zone, a security zone declared by Taiwan that is not territorial airspace.

Mass flights of Chinese aircraft around Taiwan are common, but the November 28 flight was a first for the tanker version of the Y-20, a strategic airlifter operated by China’s military.

China Y-20 aerial refueling aircraft
A Chinese Y-20 aerial-refueling variant.

The Y-20 tanker can refuel fighter jets, like the stealthy J-20, and larger aircraft like the H-6 bomber, five of which took part in the November 28 flight.

Days later, the US Navy said its newest refueling aircraft, the MQ-25 Stingray, had arrived aboard the USS George H.W. Bush for “its first test period aboard the aircraft carrier.”

The Navy issued an $800 million contract for the MQ-25 in August 2018, and the unmanned aircraft took its first flight a year later.

During June 2021 test flight with a Navy F/A-18 Super Hornet, it became the first unmanned aircraft to conduct aerial refueling with another aircraft.

MQ-25 aboard USS George H.W. Bush aircraft carrier
An MQ-25 test aircraft is loaded onto USS George H.W. Bush, December 2021.

Multiple days of testing aboard the carrier “will provide an early evaluation of MQ-25 operations in a shipboard environment,” said Jamie Cosgrove, a spokeswoman for the Navy’s program executive office for unmanned aviation.

The non-flight testing will involve the MQ-25 “being driven around the flight deck while at sea to check its handling qualities, and the functionality and capabilities of the deck handling system,” Cosgrave told Insider. “This will include taxiing into and connecting to the catapult, clearing the landing area, and various other maneuvers.”

The Navy plans to acquire 72 MQ-25s, each able to offload 15,000 pounds of fuel — enough for two aircraft — at a range of 500 nautical miles from a carrier, adding roughly 300 nautical miles to the Super Hornet’s range.

Different aircraft, same mission

A Chinese People's Liberation Army Air Force Y-20 transport aircraft
A Y-20 at Airshow China 2018 in China’s Guangdong province, November 7, 2018.

China currently has roughly 30 aircraft — older Soviet-designed Il-78s and HU-6 variants of the H-6 — for refueling. According to Chinese state media, the Y-20 tanker can carry about 90 tons of fuel, similar to the capacity of the Il-78 but greater than that of the HU-6, which carries less than 30 tons of fuel.

The “main significance” of the tanker “is that it can extend the operational range of the H-6K bomber, which could threaten US warships even further east of Taiwan,” said Timothy Heath, a senior international defense researcher at the RAND Corporation.

In its most recent report on China’s military, the US Defense Department said the Y-20 tanker will improve the Chinese air force’s ability to “operate beyond the First Island Chain from bases in mainland China,” referring to the island chain that includes Japan, Taiwan, and the Philippines.

The Y-20 tanker still needs work, including the replacement of Soviet-designed engines with Chinese-made engines that will improve its lift and range.

China’s military has aerial-refueling experience, but the Y-20 tanker is “a new capability,” Heath told Insider. “It will take the PLA some time to become proficient operating with the new platform.”

MQ-25 Stingray aerial refueling drone aircraft
An MQ-25 Stingray during ground testing at Naval Station Norfolk in Virginia, November 10, 2021.

The MQ-25 will extend the range of the US Navy’s carrier air wing, and while it’s focused on refueling, Navy leaders have ambitions to give it more missions, such as intelligence-gathering and airstrikes.

The Navy has said it intends to have the MQ-25 operational around 2025, and the aircraft will go through additional testing on land and on carriers, including with carrier launch and arresting systems.

While the MQ-25 will increase the range of carrier aircraft, the opportunities it provides to the air wing may be limited if carriers have to operate farther from targets because of the threat posed by adversaries’ long-range weapons, such as China’s anti-ship missiles, according to a Hudson Institute report.

The report noted that only acquiring 72 MQ-25s may not give the Navy enough for them to accompany other aircraft on missions far from the carrier.

But a dedicated refueling asset would still be a relief for F/A-18s that for years have had to double as tankers, Kevin Chlan, a Super Hornet pilot, said in a December 2019 interview.

Tanker duties burden pilots and aircraft and are something the F/A-18 is not well suited for, said Chlan, then a fellow at the Center for Strategic and Budgetary Assessments.

“I think it’s a great implementation to kind of ease unmanned platforms onto the flight deck in a mission-set that otherwise just takes up a ton of overhead from your fighters,” Chlan said.

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US Air Force secretary says the service needs to get rid of aircraft that don’t threaten China

A-10 Fleet
  • The US Air Force secretary has said repeatedly the US needs to get rid of old aircraft to hone capabilities that ‘scare China.’
  • “If it doesn’t threaten China, why are we doing it?” he said recently.
  • The Air Force chief of staff also wants to retire older aircraft, but the service faces pushback from Congress.

The US Air Force needs to retire older aircraft that are not well suited for a conflict with China to make way for newer systems with the capabilities necessary for great power conflict, Secretary of the Air Force Frank Kendall said again this weekend, according to Defense News.

“If it doesn’t threaten China, why are we doing it?” Kendall asked at the Reagan National Defense Forum on Saturday, calling the service’s fleet of aging fighters, tankers, and drones an “anchor holding back the Air Force” as it works to respond to modern threats.

China is the Department of Defense’s pacing challenge, as the secretary of defense has said repeatedly, and the Air Force secretary has made responding to that challenge a priority.

In August, shortly after Kendall was sworn in as the new civilian leader of the Air Force, he told Defense News that the service needs advanced and emerging technologies that “scare China” but is currently constrained by Congress’ unwillingness to retire outdated airframes.

“I love the A-10,” he recently told Reuters in his office at the Pentagon. “The C-130 is a great aircraft that’s been very capable and very effective for a lot of missions. The MQ-9s have been very effective for counterterrorism and so on.”

“They’re still useful,” Kendall said, “but none of these things scare China.”

Some Chinese air force leaders have responded publicly to the US Air Force secretary’s remarks.

“Recently a counterpart of mine who is from a major country claims that he wants to scare China,” Lt. Gen. Wang Wei, deputy commander of the Chinese People’s Liberation Army Air Force, said in late September, South China Morning Post reported.”I can only say, if they are not scared, let us meet in the sky.”

The US military has spent decades waging war in the Middle East where the Air Force had unchecked air superiority and did not have to contend with sophisticated air-defense systems. That would probably not be the case in a great power fight, especially one with China, which is rapidly modernizing its military.

With the shift in focus to great power competition, the Air Force is having to rethink its aircraft inventory.

In its fiscal year 2022 budget request, the Air Force proposed mothballing over 200 aircraft, including A-10 Thunderbolt II attack aircraft, F-35C/D Eagles and F/16C/D Fighting Falcons, KC-135 Stratotankers and KC-10 Extenders, C-130 Hercules transport planes, E-8C Joint Surveillance Target Attack Radar System aircraft, and RQ-4 Globe Hawk drones, all older platforms.

Around two weeks before the release of the service’s budget proposal, Air Force Chief of Staff Gen. Charles CQ Brown said that he wanted to eventually trim the fighter fleet from seven fighter types to just four, namely the F-16, F-35, F-15EX, and the Next Generation Air Dominance (NGAD) fighter, which is still being developed.

The Air Force argues that retiring aircraft that are no longer able to adequately meet the threats the US faces from major powers would free up funds for new, higher-end capabilities that would otherwise have to be used to cover the repair and maintenance costs for decades-old aircraft.

Lawmakers in Congress, however, push back every year, challenging Air Force interests in retiring “old iron,” as Kendall put it recently. Brown argues this jeopardizes US national security interests.

“We will not have the capabilities for any future crisis and contingencies,” he told Defense News. “That concerns me. If we don’t [change], we’re going to lose aspects of our national security because we’re holding on to the past.”

Expressing very similar concerns, Kendall previously told the defense outlet that if you are “hamstrung by the fact that you can’t divest bases you don’t need [and] you can’t divest aircraft you don’t need, you can’t take the steps that you need to modernize.”

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China’s middle class is starting to look a lot like America’s, and that’s not a good thing

A street with houses and cars lining the sides
In both China and the US, it’s now hard for the middle class to do better than their parents.

  • Housing is increasingly unaffordable for China’s middle class, and household debt levels are rising.
  • China’s middle class faces the real possibility of not being able to do better than their parents.
  • In other words, China’s middle class is starting to look a lot like America’s.

China’s middle class has grown explosively in the past twenty years.

In 2000, roughly 3% of the country’s population was classified as middle class. By 2018, more than half of China’s population — 707 million people — had entered the country’s middle-income bracket, according to calculations from the Center for Strategic and International Studies that defined the middle class as those spending between $10 and $50 a day.

As China’s middle class has expanded, it has in many ways also started to look like America’s. In its most recent middle-class analysis, the Pew Research Center in 2016 classified 52% of the US population as middle class. (Methodology for defining the middle class varies, but many experts — including Pew — define the middle class globally as those who live on $10.01 to $20 a day per person, which straddles the poverty line in the US.)

And while the growth of China’s middle class is a good thing — those 707 million people have risen out of poverty, after all — some of the similarities it now shares with the US are distinctly less positive.

Max Zenglein, chief economist for the Berlin-based Mercator Institute for China Studies (MERICS), told Insider China’s middle class will soon face very similar challenges to the US and European middle classes: “Wage growth is not strong enough to make it easy for them to afford their dreams.”

“It’s very difficult to move upward, but there is a risk for them to move down, and that’s something new,” Zenglein said of China. “They might be hitting a ceiling.”

Priced out of the housing market and increasingly relying on personal lending networks

In China and the US alike, housing prices are rising. 

The rise in US home prices has been especially pronounced during the pandemic. In April, home prices rose by 14.6%, the biggest price spike in 30 years. And housing prices, which kept hitting new highs throughout 2021, could surge another 16% in 2022, Goldman Sachs said in October.

In this environment, Ben Winck recently wrote for Insider, middle-class homebuyers are out of luck: The US is running out of starter homes, and, on the coasts especially, contractors are prioritizing expensive homes that are out of reach for middle-income earners.

In China, real estate prices have has also been climbing over the past two or three decades. From 2003 to 2013, for example, housing prices in tier 1 cities like Shanghai, Beijing, and Shenzhen saw an average annual growth rate of 13.1%. Recently, amid market concerns sparked by real-estate giant Evergrande’s debt woes, that trend has seen a reversal: In October, home prices in China started falling for the first time in six years.

Despite the massive growth in China’s home prices over the past decades, nearly 80% of households in China are homeowners (compared to 65% in the US). So while housing in and of itself is not out of reach (the country certainly has no shortage of homes), the price of houses is. That’s why homebuyers, and younger generations of homebuyers in particular, are increasingly turning to personal lending networks to be able to pay the required 30% down payment on a home.

“It’s not a problem of housing availability,” Logan Wright, director of China markets research for research group Rhodium Group, told Insider. “It’s a problem of price relative to income, especially in desirable places to live.”

Aerial view of the Shenzhen River marking the border between residential and commercial buildings in Shenzhen, right, and farmland in Hong Kong, left, on December 29, 2020.
Cities like Shenzhen, pictured, are homes to a middle class that’s starting to look ever more like America’s.

Rising levels of household debt

Largely because of the rising cost of housing, household debt in both the US and China has increased.

Total household debt in the US exceeded $15 trillion in Q3 2021, according to the Federal Reserve. That’s $1 trillion higher than it was at the end of 2019. The typical American household has roughly $145,000 in debt, per the US Department of Housing and Urban Development — nearly $100,000 more than it did in 2000. That’s also significantly higher than the median household income in the US, which is currently $79,000.

Meanwhile, China’s household debt is lower than in many developed countries — but has been steadily on the rise since the financial crisis, Bernard Aw, an economist overseeing the Asia Pacific for Coface, previously told Insider.

In 2020, China’s household debt rose to 128% of income, according to a Rhodium Group report. And at the end of October, China’s total household debt hit 70 trillion yuan (US $10.98 trillion), Wright said, citing data from the People’s Bank of China.

“Household debt has increased rapidly, so they’re leveraged. It’s a combination of high leverage, weaker economic growth, and lower income growth,” Zenglein said of China’s middle class. “So something’s gotta give.”

At risk of falling out of the middle class

Something is giving: In both China and the US, it’s increasingly difficult for the middle class to do better than their parents.

The US middle class is shrinking, and it’s struggling. From 1979 to 2017, household income growth for the middle class grew more slowly than incomes in both the top and bottom 20% of American earners. And as middle-class wages stagnated, the cost of living in the US soared.

While 61% of American adults were classified as middle class in 1971, that number shrank to 50% by 2005, according to data from the Pew Research Center. And per a paper from nonprofit research group Rand Corporation, 2.7 million Americans fell out of the middle class from 2007 to 2017.

In China, the difficulty of remaining in the middle class is a new predicament.

“For younger generations, they are coming from parents who came from the dark times in China’s development and who improved every year significantly in wealth,” Zenglein said. “For the new generation, they can no longer take for granted that they will be better off as a whole.”

Zenglein clarified that there’s a wealth divide within the trend, too: “This is probably less relevant for the lower-income groups, like migrant workers. Even though inequality is rising, it’ll be easier for their kids to have a better life than for those who are coming from the middle class.”

Notably, the plight of the middle class extends beyond China and the US; on a global scale, 54 million people fell out of the middle class last year amid the pandemic.

Not a mirror reflection

To be sure, for all their similarities, the two countries’ middle classes have their differences.

For one, America’s middle class is more established. For decades, it was the richest middle class in the world (it lost the title to Canada in 2019).

While real estate is important for wealth-building in both the US and China, the role homeownership plays in each country is not comparable. “The role of real estate for wealth and social standing in China is significantly different than it is in the US. If you don’t have a house, you’re not going to get a wife,” Zenglein said of China. In China, 70-80% of household assets are tied to real estate, which is higher than it just about any other developed country. 

The US-China similarities are also not uniform throughout China; instead, they’re prominent mostly in China’s developed, urban centers — cities like Shanghai, Shenzhen, and Beijing. As Zenglein put it, it’s “the biggest winners of China’s economic success that are starting to look more like the US middle class.”

That said, the resemblance between the two is strong, and it’s stronger than it’s been before.

Wright said there are growing risks to the economy and standards of living in China if the property sector starts to weaken considerably: “If housing is still people’s primary asset, even if they’re borrowing in order to engage in the housing market, that’s going to have an implication for whether people feel or act like middle class as well.”

“It’s not a one-to-one match,” Zenglein said of the US and China middle classes, “but it’s getting into an area where the similarities are increasing.”

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