211–220 of 395 posts
The 200$ billion hole in CN real estate is comparable in size to the SVB signature US banking crisis. In that case US treasury policy was a bailout for uninsured depositors who are wealthy supporters of the ruling blue party. Most of the underwater property developers are wealthy patrons of the ruling red party in China and will ultimately receive similar government bailouts. Privatized gains and socialized losses it…
The 200$ billion hole in CN real estate is comparable in size to the SVB signature US banking crisis. In that case US treasury policy was a bailout for uninsured depositors who are wealthy supporters of the ruling blue party. Most of the underwater property developers are wealthy patrons of the ruling red party in China and will ultimately receive similar government bailouts. Privatized gains and socialized losses it…
Why would Chinese Communist party members bail out USD denominated bond holders when they didn’t bail out Yuan denominated bond holders in 2021?
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Corporate socialism is much like communism. Both have in common a ruling caste that benefits from exploting the masses. Which is why we need something better than communism or capitalism. I am curious as to why we seem to have stalled political innovation. Are we stuck with variations of these concepts for the next couple milenia?
history is over!
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Government control over reproduction leads to unintended consequences? Who would've seen that coming?
Fertility rate across the world is dropping even without government intervention. Who knew having a higher standard of living means you don't need as many kids to work the farm, and indeed, that people simply don't want to give up that lifestyle in order to have kids?
Smaller rich countries can solve this problem by importing young workers from poor countries. But on China's scale of 1.5B people that's not really feasible. (China also isn't really that rich on average, isn't attractive for immigrants and isn't culturally welcoming to immigrants)
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> It was never about money or trade it was all about keeping asians down and dependent. Thats way too much simplification. For starters there isn't a level playing field. Any Chinese company can start a company in the west but if a western company wants to start a company in China you can either start a "second class" entity (a WFOE) or if you want a level playing field with the locals you can use a joint venture but…
The previous mandate of a 50% joint venture in the automotive sector is outdated. Take for example Tesla in China, which operates without a joint venture. Similarly, BMW's Chinese operations are only 30% owned by a local entity, deviating from the earlier 50% norm. Despite certain industry-specific regulations, it's essential to recognize that China aligns well with its WTO obligations—a framework that the U.S. and o…
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Who says those properties are worth their book value? This is how a crash happens these days - distressed asset holders forced into fire sales of the assets themselves, lowering asset values and putting more of the holders into distress.
They don't have to be worth book value to be worth more than the outstanding loan principal. This is also why it can make sense to pay the bank in real estate. The bank doesn't need to sell it immediately because they don't need to pay a mortgage so they can just sit on it and collect rental income until they can find a buyer. Another alternative is for the real estate trust to sell new shares into the market and use…
This crash was always on the cards. Just a matter of when, and the when may have finally arrived.
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The lenders in the Chinese housing market are mostly Chinese citizens. In modern China, rather than buying a house, you buy a promise of a house, then the house builder builds it for you. The house builders though have these huge debts, and they've been using money from new purchases to construct their backlog of homes. The $90bn outstanding is $90bn in outstanding housing construction, not just abstract debts to ban…
That sounds suspiciously like a pyramid scheme: the only thing financing the current construction are payments to new construction. How did they get into this situation? By continuously selling under cost, or perhaps by siphoning off profits?
When the housing market is good, this scheme brings real estate costs down, because you can buy cheaper "not-yet-build" flats or houses, and the developer can seek funding without overpaying on the bank loans. But if the housing market tanks, the development freezes, and the first buyers take a loss. I don't know about China, but in some countries such obligations are mandatory insured from the default, so people can get at least some of their money back. In others buyers are left with a piece of land with unfinished building.
There are many real estate giants and so-called "trust" companies who are incapable of repaying debt right now. Some of these companies have trillions in RMB on their balance sheets. The central bank can bail them out but at the expense of the assets of the middle and lower class. This would only further incentivize cash hoarding, and tighten the middle income trap. It is not an enviable situation.
Are they actually underwater or do they just have higher loan payments than rental income? If it's the latter, let them sell some properties or transfer them to the bank in lieu of loan payments.
They might have some properties that are not collateral, but even selling those imposes a problem: in the current market, most likely they will be sold well below book value. This automatically devaluates the value of any other property which they would like to use in the future for collateral and it will make existing lenders very nervous as well.
It's clear that there have been instances of questionable financial maneuvering by individuals behind these real estate companies, involving substantial sums of money being moved out of China through various, potentially illicit means. In Evergrande's case, critics point to dubious ventures, such as an automotive business that never produced cars, as potential vehicles for siphoning money to overseas entities. Additionally, the issuance of USD-denominated bonds—often purchased by shareholders—is another strategy that has been scrutinized.
To address these challenges, the Chinese government has enforced exit bans and placed these individuals under strict supervision. They are often required to return these funds to China, potentially under threat of reduced prison sentences. This sounds not right... but yeah... it is China. And China does not have other means to use like US to extradite fugitives or request the money back even it got all the evidence... exit-ban and blackmailing are the only way China can go...
As for Evergrande, while it's severely distressed, it continues to operate, largely as a 'zombie' company under state guidance, to resolve as much of its outstanding debt and obligations as possible. A full government bailout, in the Western sense, does not appear to be on the table.
Regarding the broader crisis, I feel the situation is largely controllable due to the extensive tools at the disposal of the Chinese government. It's almost certain that the authorities have already devised a comprehensive plan and roadmap to navigate this crisis 1-2 years ago...