Evergrande shares plunge as much as 87% as trading resumes after 17 months

1. There is an excess supply of apartments including the ones that have already been sold. The demand side is mostly people buying second and third units as investments.

2. China is going through a weird demographic situation. The younger generations are significantly fewer in number, they will need fewer apartments to live in.

3. Chinese provincial governments raise money by developing land and continue to be incentivized to build/approve/encourage a lot of apartment units.

4. All of this is funded with mortgages.

Thing is, all four of these can not possibly be right. It’s a little too insane. Whoever is on the other side of all those mortgages should have abandoned ship a long time ago otherwise.

What am I missing?

Who is holding all that mortgage debt? Who is continuing to issue more of that debt? When do the number of people selling their investment properties exceed the number of younger generations looking to buy their first primary residence?

1.) as of 2021, There are nearly 800 unfinished Evergrande projects in more than 200 cities across China. https://www.nytimes.com/2021/09/28/business/china-evergrande.... Even if the buildings were unfinished, the buyer still had to keep paying the mortgage!! and if they didn't, and the courts foreclosed the property and sold it, the buyer is liable for the fees and the differences. Most of the time the buyer is hugely underwater since the real estate price in 2023 has crashed 50% - 70% from peak. And now, because your social credit is shot, you no longer can purchase tickets for flight or train, making it even harder to try to find jobs to pay back your debt.

2.) China is known for its tofu dreg buildings. Just google online if you want to see brand new condos with facades blown off, cracked foundation, sand mixture where cement should be, tilted buildings, etc. This is especially true with buildings built in the last few years. And this is especially true for buildings from bankrupt mega developers like evergrande and country garden.

3.) This is a domino that leads to a series of systemic collapse. Country garden, the second largest developer in China, missed bond payments as small as 22 million recently. It had a capitalization of 60B in 2018. Now it has a debt of 200B. Zhongzhi enterprise missed payments recently, being one of the largest trust company. People are reminded of Lehman from these events. https://www.businessinsider.com/china-economy-beijing-lehman.... Doesn't help that export and import just collapsed by double digits in July, exports to US dropped 23% y/y, there's huge youth unemployment of at least 22%, foreign investment dropped 90% in 2023, and the worst flood in the last 50 years just hit China's biggest grain region.

Oh yeah, and because Chinese citizens are outraged by Fukushima release, they are boycotting Japanese seafood, and in general all seafood, which has decimated the entire seafood industry in China overnight, with no traffic to seafood market or restaurants.

4.) Even if the buildings were done, a lot of the buildings are empty and not livable due to shoddy finish, foreclosures, no public amenities working, lack of residents (owners are selling the units at 50% price cuts), etc. Imagine living in a huge 50 story building with only a few residents at night. https://www.architecturaldigest.com/story/see-inside-a-ghost...

There are famous online videos from newlyweds that purchased a condo from a few years ago, and have been documenting their journey, and they still haven't received the unit. Meanwhile their kid was born already.

2.) Yes, just google "empty kindegardens in China". Also, marriages dropped to the lowest since records began in 1986. https://www.theguardian.com/world/2023/jun/14/marriages-in-c...

3.) Nope. China’s government land sales revenue declined for the 19th consecutive month in July. Land sales fell 10.1% from a year earlier in July, after declining 24.3% the previous month https://www.reuters.com/article/china-economy-landsales/chin...

The Chinese local governments' bonds alone total at about $2 trillion, and any defaults would rock the Asian nation's $60 trillion financial system, according to Bloomberg. https://www.businessinsider.in/stock-market/news/chinas-10-t...