CLS Classmate: China’s Auto Sales Plunge 20%; If Beijing Rolls Out Home Purchase Subsidies, the New Home Market Could “Completely Reverse”

China’s economy is cooling faster than most people realize. In the first half of 2026, passenger vehicle sales plunged 20.4% year-over-year, effectively returning to 2013 levels—a decline of this magnitude, according to the CLS Classmate host, has historically only occurred during economic crises. At the same time, real estate investment, already in decline for four to five consecutive years, fell more than 25% year-over-year this year, dragging July fixed-asset investment down 12.8% year-over-year—a record high.

Consumption, investment, and exports—the three engines of growth—have all turned cold simultaneously, and the real policy battle is only just beginning.

Auto Sales Collapse: The Brutal Cost of Subsidy Overdraft

The auto industry is the best entry point for understanding China’s current consumption predicament. In the first half of 2026, China’s passenger vehicle sales fell 20.4% year-over-year, essentially back to 2013 levels. Behind this number lies a classic story of policy-driven demand overdraft.

Three years of trade-in subsidies pulled forward car-buying demand from future years. Once the subsidy policy contracted, sales immediately turned negative. The host stated bluntly that this kind of decline has historically only occurred during economic crises—and it is now unfolding in an almost silent manner.

An even tougher test awaits next year. The vehicle purchase tax reduction policy is ending entirely, battery tax exemptions will be scrapped after September, and chip and storage prices are surging—a triple cost squeeze hitting all at once. Yet auto industry profit margins have already fallen to around 5%, leaving automakers with no room to absorb these costs. The host predicts that vehicle on-the-road prices will likely rise next year, and the sales decline will most likely continue.

This is not an isolated industry dilemma but a microcosm of structural consumption collapse.

Pork and Solar: When Demand Is Weak, Low Prices Can “Last Until You Doubt Reality”

If the auto sales crash is a direct consequence of policy rollback, the struggles of pork and solar reveal a deeper problem: until demand truly recovers, supply-side efforts are almost certainly doomed to fail.

Muyuan Foods—the hog industry leader with the strongest cost-control capabilities—posted losses exceeding NT$6 billion (approximately $190.0 million) in the first half of this year, meaning the entire hog industry is in a state of comprehensive losses. After a brief rebound over several months, pork prices continued to hit new lows in August.

The host used the solar industry’s lessons to warn those in the pork business:

Even if prices fall below cost, even if the industry practices self-disciplined production cuts, even if top officials keep issuing red-header documents, against a backdrop of weak market demand, ultra-low prices can persist until you doubt reality.

His assessment of pork prices is equally grim. Barring an extreme supply-shock event like the African swine fever outbreak, replicating the price upswing of a pig cycle is difficult against the backdrop of a downward consumption cycle. The fundamental logic: falling home prices are driving household deleveraging, discretionary spending is being curtailed, and shrinking aggregate demand has stripped all supply-side reforms of their foundation.

Real Estate Trade-Ins: A “Ferrari $5,000 Voucher” Dilemma and the Imagination of Central-Level Subsidies

Facing an economy that has turned cold across the board, trade-in programs have been the core domestic demand stimulus tool of recent years. But their boundaries are now being re-examined.

Shanghai recently rolled out a real estate trade-in policy with a subsidy ratio of 1% and a cap of NT$50,000 (approximately $1,600). The host’s assessment was blunt: both the total subsidy pool and the per-transaction subsidy amount are too low—akin to a $5,000 voucher for a Ferrari—and unlikely to genuinely stimulate demand.

However, the policy has produced a subtle effect: many homebuyers say the new policy has accelerated their pace of “selling old to buy new.” This led the host to a bold thought experiment: what if the financially powerful central government stepped in and extended the auto/appliance trade-in logic to real estate?

Using the approximate auto subsidy ratio (roughly NT$10,000 subsidy on a NT$200,000 purchase, i.e., 5%) as a benchmark:

Purchasing a NT$5 million property could yield a NT$250,000 subsidy, meaning the new home market could be completely reversed and real estate investment could surge vertically. The host believes this contains significant investment opportunity.

But he also set strict trigger conditions for this scenario: a comprehensive real estate trade-in program would require far greater funding than autos and appliances. Only when the economy is in full-blown malaise and exports turn negative after an AI bubble burst would Beijing likely step in. For now, the July meeting contained only a single sentence on real estate, and the “drag without lifting” approach remains dominant.

Treasury Yields Surge to Two-Decade High: The Credibility Deficit of Three Men

On the international front, the most significant event this episode is the 30-year U.S. Treasury yield rising above 5.2%, a near two-decade high. Repo operations, narrative management, policy signaling—the market’s response to all of it has been: sell first, ask questions later.

The host pointed the finger at three men: Donald Trump, Treasury Secretary Scott Bessent, and newly installed Federal Reserve Chair Kevin Warsh.

Trump’s problem is the Middle East. Markets had expected a swift end to the Middle East conflict, falling oil prices, and cooling inflation. Instead, Trump’s on-again, off-again approach with Iran and the start-stop dynamics in the Strait of Hormuz have kept global crude inventories draining, with oil prices climbing back above $90 in August. Multiple polls show Trump’s approval rating at the lowest point of his term.

Bessent’s problem is broken promises. He came into office touting deficit reduction, and Elon Musk’s Department of Government Efficiency took aim at the civil service—but after Musk’s quiet exit, the Treasury Department returned to the money-printing playbook. The “Big and Beautiful” bill added $4 trillion in debt, tariff rebates added another $1.7 trillion, and combined with military spending expansion and high-interest debt servicing, U.S. debt has surged from $36 trillion to $40 trillion in just over a year of Trump’s presidency. The host’s summary was sharp and direct:

Trump, the dragon-slayer, has become the dragon himself. After Musk’s quiet departure, the Treasury Department under Bessent began replicating the money-printing playbook of previous administrations.

Warsh’s problem is more complex. The new Fed chair has, for two consecutive FOMC meetings, insisted on a communication approach of “reducing information disclosure and letting the market do the pricing”—and after both meetings, long- and short-term Treasury yields spiked. The host made no effort to hide his doubts about Warsh’s competence, revisiting Warsh’s track record as a Fed governor from 2006 to 2011: after the 2008 subprime crisis, Warsh repeatedly opposed rate cuts and balance sheet expansion to rescue the economy—calls that were ultimately proven wrong—and he later resigned early due to policy disagreements with then-Chair Ben Bernanke.

This man is both stubborn and mediocre. I have a feeling the Fed under his leadership is going to produce some surprises—and not the good kind.

Treasuries Won’t Default, But Risk Is Genuinely Rising

Addressing market concerns about whether U.S. Treasuries could blow up, the host offered a clear analytical framework.

The credit backing of U.S. Treasuries comes from America’s fundamental standing as a nation. If Treasuries were to suffer a credit default, it would be tantamount to the world’s leading superpower entering decline and collapse. With the dollar, the U.S. military, and American technology still leading globally, the backing of Treasuries remains arguably the strongest in the world. Therefore, in the near term, the probability of a Treasury blowup is extremely small.

But risk has been elevated by the three figures mentioned above. Market confidence in fiscal discipline is being eroded, and the continued rise in long-end yields is itself the most direct stress test. The host also listed several mitigating factors: the debt ceiling is not far off, midterm elections are approaching, Democrats controlling the House would block Trump’s continued fiscal expansion, AI capital expenditure may decline, and there are expectations of cooling inflation and employment.

He predicts that after the midterms, Democrats will control at least the House, which will block Trump’s continued fiscal expansion and may reverse parts of his foreign strategy. Therefore, panic about a global debt blowup is premature.

Europe’s “False Prosperity” and the Watchlist

Europe’s apparent economic recovery also warrants caution. Second-quarter Eurozone GDP grew 1.8% quarter-over-quarter—seemingly impressive—but excluding a one-off factor from Ireland related to multinational corporations concentrating intellectual property investment transfers, actual growth was just 0.3%, essentially flat with the first quarter. Fiscal expansion in major economies like France and Germany, along with manufacturing exports boosted by the global AI boom, are masking the underlying weakness of Europe’s real economy.

With China waiting for central-level stimulus in real estate and the U.S. waiting for either a return to fiscal discipline or a correction in the Fed’s communication approach, a critical observation point is emerging: the timing of the AI bubble’s burst. The host has set this as the precondition for China’s comprehensive real estate trade-in policy to be rolled out. Before that happens, PPI month-over-month data in August and September may turn positive again due to the oil price rebound—but this looks more like a technical bounce than a genuine trend reversal.

China’s economy cooling across the board is now an established fact. When the policy inflection point arrives will determine the direction of asset prices over the coming quarters. Meanwhile, the tug-of-war between U.S. fiscal expansion and long-end interest rates is redefining the pricing anchor for global capital. The world’s two largest economies are both standing at a crossroads, waiting.