Young people in China are being shut out of the labor market, causing unemployment rates among people ages 16 to 24 to surge to a record 21.3% in June. China’s powerhouse manufacturing industry is shrinking as businesses continue to leave the country and the highly educated cohort with dreams of securing high-skilled, high-wage work in IT and engineering, cannot find jobs.

Straight Arrow News contributor Peter Zeihan outlines in three parts how China’s broken manufacturing economy is leading to “massive disconnects” in the Chinese employment system.

An excerpt from Peter’s July 26 “Zeihan on Geopolitics” newsletter:

Coming to you from Colorado’s very own Stonehenge out in the Lost Wilderness. Today’s new factoid is that youth unemployment in China is higher than in Italy (in percentage terms).

For context, Italy had the worst economic profile in Europe and has averaged negative economic growth for decades. If China’s unemployment resembles Italy’s, it is a very, very bad sign. Let’s break this down in the context of manufacturing.

Phase 1. Everyone is reshoring and pulling investments from China. Young people are pursuing IT jobs instead of manufacturing jobs. The problem is that China is a closed system that sucks at all things tech.

Phase 2. Xi’s cult of personality has ensured that China’s labor force won’t be able to develop into a value-add or tech-based system. Meaning everything will get significantly worse, and there’s not much hope of it getting better.

Phase 3. Remember the last time something like this happened in the Chinese system? We ended up with the Tiananmen Square protests. While that triggered the change in the political system we see today, Xi’s wiped away any opportunity for such change to happen now.

When a disconnect like this happens in the employment system, it inevitably translates over to the economic system. I’m not suggesting that this is the end, but this is how ends begin…