China’s property giant Evergrande files for bankruptcy protection in Manhattan | Hacker News Reader

China’s property giant Evergrande files for bankruptcy protection in Manhattan

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334 pointsdonsupreme382 comments

The Chinese government's approach to dealing with failing real-estate companies, including Evergrande, is distinct from typical Western bailouts. In China, the strategy often involves allowing such companies to default in a controlled manner. Given that the major lenders and banks are state-owned , this essentially means that the government bears the loss through these institutions (what else can happen anyway??) . Asset management companies are then allowed to bid for any remaining valuable assets of the failed company. The state government has also issued directives to local governments, ensuring they take responsibility for the completion of housing projects for homebuyers.

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...

You are sharing the official written policy, but the reality on the ground is very different in China. Most business happens under the table. Corruption and bribes are commonplace in every transaction. Books are all fudged to a high degree. Millions of people who put up large deposits and made monthly payments for under construction houses to developers like Evergrande are never getting anything back, and laws aren't going to help them. The central government has a tight grasp on maintaining its control but not much else. That's just how things work in China.

I don't mean to burst your bubble, but... this picture of a "house of cards"-economy, with "swindles all the way down", riddled Swiss-cheese-style with corruption, while indeed a Western populist idyll visage of China these days (a sort of Western-denialists wet dream of impending Chinese doom), is inaccurate, and I think, dangerous for folks in the West to believe, if they truly hope to compete with "their biggest strategic adversary."

Surely there is corruption, failure and incompetence, but if it was on the scale that comments like this yearn for, China would look more like Cambodia, or Myanmar, or even Thailand, than China.

The simple truth is China would not have been able to achieve the scale of productivity and growth that it has (and if you doubt the scale, you must travel there in earnest, you will leave mind-expanded, if not fully blown), if it were truly like you merely wish it were. Sorry, but truth ain't always easy to hear.

> Sorry, but truth ain't always easy to hear.

It's copeium. The alternative is to admit that there could be another system, authoritarian, non-democratic, where there is no freedom, yet it's successful and have a chance to be the biggest economy in the world in a few decades. At this point, it's all about ideology.

It's completely copium. It's kind of dumb. Already the biggest in the world a few years ago by some metrics, but in GDP terms maybe 10 - 15 years. But the strange thing is that still so much room to grow beyond that. 5 to 6x times as many people as US, to achieve a comparable standard of living to US would produce a truly enormous economy.

I don't think China should be "world ruler" by any means (they're not ready and not international enough, and that Chinese culture is not respecting of other people enough at all, and that's not OK, but we can't expect them to develop themselves too quickly because they have a lot on their plate) but I think people should want China to be successful. To want them to be a giant failure is just dumb.

And smart people will be learning from China right now, not drinking copium while being a pendejo over China-crash-porn. It's all so ridiculous and sad. How can you say you're from "the best/ better" system if that's your reaction to a new contender? It makes you look like a bitter loser. Ugh...

Granted there will be downvotes to espousing this correct view, so part of the problem is people in the West need to work through their anger/fear issues on China before they can see it clearly. We're not there yet. And we can't hope to really compete until we can see it clearly, so...get to work people, do the inner work to have some clear sight!!

You appear to assume all of china's cities are either Tier1 or Tier5. That's not how it works in any country. Obviously, the higher tier cities look nice. But that doesn't apply to the entire country. You take one step into a lower tier city and you end up in what looks very similar to Indonesia or Malaysia.

That's not necessarily all the main government's fault either. The scale of the country means control is incredibly difficult. Which also happens to be part of the motivation behind the Social Credit Score that everyone brings up.

Honestly, it's actually quite surprising how similar the city tier dynamic appears to the relationship between Singapore/Malaysia/Indonesia.

Can you give some examples of these “lower tier” cities on the mainland? Also where would cities in Taiwan and Hong Kong occur on these scales? Also in the US, UK and Australia?

I thought I was treating it as an overall. I’m not sure I follow but it’s interesting. Anyway, the scale is massive and impressive. No?

My point.

Thanks for chiming in three days later I guess

https://en.wikipedia.org/wiki/Chinese_city_tier_system

You can find the Chinese city "tier" classification system on wikipedia. It's not an official scale, but used commonly due to just how massive and varied the country is. Looks like the scale I remember isn't the standard, since apparently the most common one is ~4 tiers.

As for why I brought up the generalization; corruption is variable within a country. Corruption in China is rife, in part because of the population size. I am fairly sure you have heard of Tofu Dreg construction. That kind of corruption is barely noticeable in cities close to administration centers. (Such as Tier 1 cities. It gets cracked down on very quickly) The same does not apply elsewhere.

I just don't want to be too unfair to china with this. Most countries have corruption outside of the major cities and administration centers.

> The simple truth is China would not have been able to achieve the scale of productivity and growth that it has

In plan economy, controlled corruption is a feature not a bug

Can you explain more? What's the theory or practice behind corruption adding benefit to the extent that you want to work it in?

It lets entrepreneurs bypass bureaucracy

Good point. Makes sense. Doesn't that mean West will need to either: loosen regulations, or permit corruption to, if it's going to compete?

Maybe the whole "VC industry" is essentially a form of "organized corruption" ha! sometimes I guess I think so... :) haha

Any sources on this?

This doesn’t sound so unreasonable to me. These guys knew what game they were playing. They could have not tried to scam the Chinese government in order to build a foreign fortune and live abroad as kleptocrats.

To me, the use of exit bans and coercive measures to bring fugitives back to China does not seem unreasonable under specific circumstances. While employing these tactics for political reasons would be problematic, they serve as some of the only tools available to the Chinese government to act against corruption and embezzlement. These measures provide leverage and serve as a deterrent to prevent corrupt officials from fleeing China with substantial illicit gains [0].

This approach is not a secret; it is well-publicized within China and internationally. For example, the BBC reported on China's "Fox Hunt" operation in 2014, although the tone of the reporting has notably changed over time [1][2].

Despite China's extensive global connections, it faces significant legal constraints in its efforts to establish extradition treaties with major countries. Given the current international political climate, the prospects of forming such treaties appear to be minimal. In this context, what other options does China have at its disposal to combat corruption and hold individuals accountable?

[0] https://en.wikipedia.org/wiki/Operation_Fox_Hunt [1] https://www.bbc.co.uk/news/world-asia-30358060 [2] https://www.bbc.co.uk/news/uk-northern-ireland-65537553

Transparency would help out a lot. Allowing the press to actually investigate and report on things, and not trying to suppress information that allows corruption to thrive. Also, there are no power branch checks, the judicial branch is at the mercy of the official branch, and the legislative branch is just to rubber-stamp things. Unless you piss off an official more powerful than you, you can basically do whatever you want.

So punishing innocent people is justified?

Innocent in what sense? In China it's not always enough to not break a law to be innocent. You might also have to act in the spirit of the law (as interpreted by the CCP) to be sure to not become the target of the justice system.

This is very different from the western system. But I think most people would agree that sometimes complete "rule of law" can also lead to perverse outcomes where very immoral business behaviours go unpunished.

I think this misses half of the purpose of 'rule of law'. Some laws are to protect interest of citizens in the state and the state itself, sure, and in that sense the importance of 'spirit of the law' could be cultural. But the other aspect of law is minimizing surprise. Efficiency of commerce depends on a certain amount of consistency around laws. The more consistent the interpretation around a body of laws the more efficiently commerce can occur. In this sense relying on 'spirit of law' is wildly unhelpful because in order to understand legal cause and effect you have to read tea leaves, understand the leaders in office, etc. The west is not immune to this problem but we depart from strict written law to our peril.

Minimizing surprise is definitely more efficient. However, preventing bad actors from abusing the system also makes for a more efficient system because it reduces incentives to do zero sum or even negative sum investments (such as causing harm to others to increase your own profit).

> In China it's not always enough to not break a law to be innocent. You might also have to act in the spirit of the law (as interpreted by the CCP) to be sure to not become the target of the justice system

So people that are family members and friends of fugitives are not acting in the spirit of the law and deserve to be punished?

> deserve to be punished?

Deserve doesn't factor into it. The world isn't fair.

When we declare war on some country most of us can't even find on the map, some barber in it who gets a Hellfire missile in his shop's window didn't 'deserve' it, but he still receives his share of collective punishment, because the ends justify the means.

I don't think the question was about the interpretation and specifics of the law but about the ethics. Wether an action is not unreasonable is also a question wether the action is should be a valid option.

We are playing a game about people after all.

The other option that China has at its disposal is to introduce multiparty democracy with the rule of law and guarantees of civil rights. Most other countries would then be happy to extradite suspects to China.

If someone had the means and opportunity to make a clean break with PRC but instead choose to not only stay but work extensively and successfully, at least for a while, with the government—-well that guy seems like part of the problem.

Exactly, I was about to say the same. I find it a very good idea to hold executives personally accountable for mismanagement. I'm not a great fan of Chinese politics but the rest of the world could learn something from China here. (remember the credit crisis anyone?)

> 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...

That's horseshit. China is widely known to operate police/spies all over the world to forcibly repatriate people that it considers Chinese citizens against their will...in blatant violation of the laws of those countries.

The threat is "we'll come and get you, wherever you go, and if we have to nobody will ever hear from you again".

They also trade it in the market, and anyone who tried to raise warning bells early is censored. Andrew Left got banned from trading in HK in 2016 because he said the company was doomed. We’ve known for a long time that Evergrande was in serious trouble, that was 7 years ago, and the Chinese government’s solution was to look for suckers who would listen to them rather than look at the numbers.

The story that somehow the Chinese government tried to censor somebody in Hong Kong (pre-2019) for saying a non-state-owned-enterprise was doomed didn't seem quite right.

So I looked it up.

https://apps.sfc.hk/edistributionWeb/gateway/EN/news-and-ann...

It looks like this Andrew Left claimed Evergrande was insolvent in *2012*. This seems more specific than "the company was doomed". I suspect the claims in 2012 was at least a bit of a hyperbole, since you'd have to hide it pretty well to keep being insolvent for 10 years. From what I read the trigger of the Evergrande blowup was over leveraged loans and a slowing property market, the situation would have been a bit different in 2012.

This seems like a case of "predicted the last 9 of the 5 recessions". I'm not sure a company blowing up 10 years after he said it was doomed is much vindication except to the extent that maybe it was really a crappy company after all.

Evergrande has been insolvent for a long time. The government kept patching it up, but anyone could tell just by looking at the data.

So you know, if the numbers say your debt is waaaaaay over your asset (they’ve been leveraged since 2008 or so, most Chinese real estate companies, just that Evergrande was exceptionally so), but the government keeps you alive for 10 years anyways, is the trader wrong or you know, the government.

Also, the reason the HK court gave for its judgement is not that Andrew Left lied or was touting fake numbers or anything like that, but the literal judgement is that “He had the right data but didn’t understand how the Chinese market was different from the West.”

I'm reading the raw report - https://www.mmt.gov.hk/files/Evergrande_Report.pdf

It looks like Left's concerns were largely legitimate, but he wasn't familiar enough with the standard accounting and industry practices that the authorities were able to nitpick details he got wrong, and he probably used a bit of hyperbolic tone to describe the real concerns about the Chinese property market.

The problems with the Chinese property market isn't "accounting fraud" as alleged because everybody is doing it in the open, I guess.

I think Left's main "fault" was that he shorted the stock, triggered a small panic, and profited from the deal. I mean, that's market manipulation unless the allegations are true, and it really is unfortunate that when it comes to truth, it's more like "what I said might be technically wrong, but I'm telling the truth!"

He profited from the panic, not the eventual failure of Evergrande. So the court ruled in accordance with the intent of the law.

If they were legally insolvent back then and his information forced them to immediately declare bankruptcy, this short would have been above board.

It is like keep the ball rolling for as long as possible. Pretend everything is fine is what people do, for other governments as well...

> Given that the major lenders and banks are state-owned , this essentially means that the government bears the loss through these institutions (what else can happen anyway??) .

All major banks ( 'too big to fail' ) are state owned. The only difference between china and the US is that china's state also directly runs the government whereas our state hires out the running of the government to popular clowns. It's essentially the difference between owner operated business vs employee run business. But fundamentally, it's the same thing.

> 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.

What is so special about china here? 'Exit bans' exist everywhere. If you commit serious financial crime and are deemed a flight-risk, your passport gets seized and you are banned from leaving the country. This happens in every country but for some reason when china does it, it's deemed 'special'. And getting a reduced sentence for cooperating with the government is the norm everywhere. If 4 people commit a crime, it's basic strategy of the prosecutor to offer 1 of the criminals immunity or reduced sentence to testify against everyone else. Once again, what's so special about china? It's amazing that basic standard legal process is consider special just because china does.

> A full government bailout, in the Western sense, does not appear to be on the table.

There is a full government bailout or not. Nothing 'western' about it as if there is a common 'western' strategy about anything. Governments all over the world do full bailouts, controlled or strategic defaults or stay out of the issue depending on the severity and systemic importance of the situation.

It’s interesting we hear the terms “bail out” when connected with how the US managed major institutional collapse. However from what I experienced on the street during these “bail outs,” Lehman, Bear, SVB, First Republic no longer exist. Their assets were salvaged and remaining functional assets acquired. The fed, treasury, and other institutions involved in the bailout ended up making handsome profits from the reperformance of the distressed assets they pulled into their balance sheets.

The only bail out was for the global participants, not just banks but everyone with an asset that depends on the orderly function of the financial system even during periods of distress. “Tax payers” paid nothing, and benefited from the recovery from the disorderly Lehman collapse and the credit squeeze that caused. There’s a lot of speculation that the relatively mild inflation the US experienced post pandemic was due to all the QE and other moves the government and governmental bodies did, as well as pandemic stimulus. I’ve yet to see the effects clearly disentangled from the systemic breakdown of logistics during the pandemic which have only fairly recently ironed out. Certainly all the cheap cash caused some inflation, but what a small price to pay compared to what everyone faced.

I think the issue with the situation in China is the assets held by these investment vehicles are never going to reperform. They’re piles of paper and empty buildings rotting with no present or future purpose. They’ve sucked up immense amounts of public money passed through the system in various ways into fake investments, and their value will simply evaporate leaving behind a desperate situation - cities and town throughout China burdened with useless infrastructure. It’s been brewing since at least 2007. But it doesn’t start and end with real estate - there are enormous infrastructure projects and bad international loans sprawling the planet that under scrutiny won’t stand up. Chinese credit spreads, where they are priceable, will have to blow up, and where they aren’t the opaque risks will sew structural and systemic lack of confidence.

I hope China can navigate whatever unwinding has to happen, and I sincerely hope it doesn’t devolve into political and social instability fueling geopolitical strawman conflicts to distract from domestic problems. While I really wish China could find a way to let its people be actually free, I don’t think a multipolar world is necessarily a bad thing. An ascendant China as more than a factory floor for the west provides a good opportunity for trade and competition, spurring growth and innovation everywhere.

> Tax payers” paid nothing, and benefited from the recovery from the disorderly Lehman collapse and the credit squeeze that caused. There’s a lot of speculation that the relatively mild inflation the US experienced post pandemic was due to all the QE and other moves the government and governmental bodies did, as well as pandemic stimulus

This is completely wrong and naive, please let us know what agency you work for.

You say stuff like that with an references, for the record everytime the money printer is run the tax payers, aka bag holders, pay out the ass.

Saying the inflation is mild is not agreed with, where are you getting that from?

https://www.usinflationcalculator.com/inflation/historical-i...

Let me be clear - the “bailouts” didn’t cost anything. They were never done with tax payer dollars, except for TARP, which was repaid in full plus interest.

> On December 19, 2014, the U.S. Treasury sold its remaining holdings of Ally Financial, essentially ending the program. Through the Treasury, the US Government actually booked $15.3 billion in profit, as it earned $441.7 billion on the $426.4 billion invested.[2][3]

https://en.m.wikipedia.org/wiki/Troubled_Asset_Relief_Progra...

Quantitative easing and other long term asset related balance sheet transfers materially reperformed as the assets were acquired during a stressed credit period and as credit improved the long term asset values increased, causing internal growth of the balance sheet value at the fed.

Additionally, the additional money supply contributed modestly towards inflation, but overall relieved enormous market pressures and allowed the economy to stay on stable footing:

> Several studies published in the aftermath of the crisis found that quantitative easing in the US has effectively contributed to lower long term interest rates on a variety of securities as well as lower credit risk. This boosted GDP growth and modestly increased inflation.[94][95][96][97][98][99]

https://en.m.wikipedia.org/wiki/Quantitative_easing

To answer your question, I don’t work anywhere right now as I’m taking a break between gigs. But I did used to be a fairly senior person at the mega banks and was a senior person in securities trading during the financial crisis and navigated my bank through it successfully (albeit we were never distressed, but all banks were treated as distressed to prevent further runs). I have no skin in any of these things though, but am always surprised by the populist hot takes from folks so far removed from the system and what actually transpired in real reality that I often wonder how wildly diverged most folks view of reality is from the actual history that I literally saw unfold around me.

Oh I could tell you work in finance, that was obvious from the language usage and technical terminology.

I'm not going to write an essay to refute this, we shouldn't have to as the results are obvious, aka how's that Big Mac index doing on the 10y.

Do you know who Henry Duncan was, what his value prop was, and how/why it died?

The end game was inevitable, and very senior people were ignored in the 80s when the flaws where pointed out.

What you have stated here, I would argue it is the perception people have of what transpired, you saved the banks but are you really saying there was no cost, and if so where did the value generation come from and at who's expense?

We are talking about different points of view, and I do realize what I'm saying can be viewed as a critique of your value, and many more like you, however I'm not.

I understand, and agree with you, that like yourself many many people have been doing amazing work to keep the financial networks flowing.

The critique is with erosion of purchasing power of our store of value, the average person is not a wall street guy and didn't understand that Henry's value prop died in 1971 and how to store value completely changed.

| but am always surprised by the populist hot takes from folks so far removed from the system

Why are you surprised, serious question. The system isn't straight forward and there are elements that are just straight up dishonest, and unless you work in the industry you won't really understand all these things.

I would argue that the networks are designed this way now, versus how they used to work and this is where people's understanding of how it's supposed work, and the disconnect you see, derives from.

> There’s a lot of speculation that the relatively mild inflation the US experienced post pandemic was due to all the QE and other moves the government and governmental bodies did, as well as pandemic stimulus.

How would stimulus and QE help prevent inflation? Can you point to someone doing that speculation?

I didn’t say it prevented inflation, I said inflation was mild given the amount of stimulus. IMO this is because as supply of money increased demand did too, and supply was sufficient to meet demand and the economy expanded rather than price inflation.

I see, I misread you. You meant the inflation was due to the QE. I thought you meant the mildness was due to the QE.

Your faith in your government is commendable. But doesn't China indeed have ways to rendition fugitives? There have been some legitimate cases, so I don't know what you're talking about when you say it can't do so.

Also, this will probably come across as callous or obtuse, or even deceptive or arrogant, so I'm sorry, but, no offence, yet you do sound a little bit concerned with the present situation, and your optimism, while seemingly bullet-proof does come off a little bit forced. I only mention this because I'm curious if you are want to share more about the zeitgeist there...are people worried? Bullish? Uncertain?

>this essentially means that the government bears the loss through these institutions (what else can happen anyway??)

How is this different than the US? Where the treasury and/or Fed step in to oversee acquisitions and provide loan guarantees?

Their housing market was a ponzi scheme, in that they took money to build developments, but used that money to market new development. Local authorities got their cuts by rezoning areas.

Very little likely escaped the country. It's all in country fraud.

Where do you think those local authorities spent their money? They knew the local housing market was no good. Even the things that did get built were Tofu-dreg projects.

The bought real estate in the US and Canada.

Real estate in Canada? Just the way it's outlined makes it sound like some foreign led fraud as opposed to a mostly home grown corrupt practices.

A similar thing happens in American suburbs where they expand cities with business malls and suburban development to enlarge the tax base but ignore O&M on infrastructure then sell more development to compensate.

But in china, they were selling development with ever building them because it became an investment vehicle.

You must not be familiar with what happened to the real estate market in Vancouver as a result of majority foreign investing from China...

Most of it they pumped back into the their own building and development market because of bad top level incentives. Hence the problem.

> 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...

How is this different from western governments? Can the state even blackmail a person? Isn't that just called a deal or leniency for cooperation with prosecutors/regulators? And isn't it fairly routine for people charged with fraud and embezzlement to be prevented from leaving the country, particularly if they are had moved assets to foreign countries?

I'm no communist party apologist, but using tools like surveillance, deals, and travel bans to recover proceeds of white collar crime doesn't seem so wrong to me.

They also:

- execute people

https://www.bloomberg.com/news/articles/2021-01-29/china-fin...

- blackmail people by targeting the family members of those that have moved abroad aka collective punishment

https://www.economist.com/china/2023/02/14/how-chinas-police...

- are on the take themselves in a way that makes all of this other stuff look like peanuts

I take it that doesn't need a source link.

- make people disappear

https://www.bbc.com/news/business-64781986

It's not as if we're looking at a democratically run country where there is a failure of a private institution, there is absolutely no way that you can run something at the level of Evergrande without being 100% in bed with the authorities.

The hypocrisy is at a level that is hard to imagine, you're essentially looking at two arms of the same thing where the one is labeled 'Evergrande' and the other is labeled 'CCP' and the one arm made the other look bad so there will be reckoning. Looking at this through the lens of a Western democracy in terms of the crimes committed isn't going to help.

> They also:

As I said, I'm not a CCP apologist, I know they do bad things and I wasn't trying to say the west is equivalent. I was purely asking about the things listed (plea / cooperation deals and monitoring and travel restrictions) which by themselves don't sound bad.

Sure, but all of these other things are definitely on the menu for execs that end up displeasing their overlords.

China do have CIA-Gestapo-like agents operating abroad to kidnap those individuals. It is way more effective than the one used by Mossad or CIA. What we have heard of infamous Putin polonium was pale in comparisons to Chinese agents network. The closest to the strength and execution of these operations would be how NK dispensed the brother in Malaysia. CIA or FSB-KGB or Mossad cannot match how clean the ops carried out. Till today, vast majority still think it was done purely by NK and couldnt even pin down a single NK agent. While routinely, we get to know who did what on CiA/KGB/Mossad ops.

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.

    Some of these companies have trillions in RMB on their balance sheets.

I don't understand this sentence. It is nonsensical to use balance in this way. You wrote "trillions in RMB". Let's assume (your hand-wavy use of the term) balance sheet means: outstanding debt. Further, each 1T RMB is 137B USD. How many companies in the whole world carry more than this much debt? Let alone Chine property developers? Wildly overstated.

Also, central bank's can print money, by definition. They can also buy debt issued by these companies to repay maturing debt. Then they can forgive this debt. Why would this harm "the assets of the middle and lower class"? The misunderstanding of monetary theory appears weak here.

From a quick google Evergrande (officially) has 2.4 trillion Yuan in debt, and 1.7 trillion Yuan in assets. Assets seem to have lost more than 20% of their value since 2019.

It is the largest one of the Chinese real estate developers, but there are a couple others that might break through the 1T Yuan mark.

That is 90 billion USD shortfall. Assuming lenders will have to take some haircut the no. is big but not something that will break the economy!! am I missing some nos.?

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 banks which could be written off or bailed out. Citizens will need to continue paying their mortgages on houses that don't (and won't) exist, which will cause some civil disquiet. Construction companies are going to have a shortfall of $90bn worth of work in their pipelines, which will mean mass layoffs. Entire large towns will go unbuilt.

Evergrande isn't the only one in this situation, it looks like a handful of large house-builders also have these uncompleted backlogs being paid for with new orders. The collapse of one might prompt the collapse of the others. As house-buyers become less confident that their house will ever exist, they'll stop buying new stock. When they stop buying new stock, the other house-builders collapse under the burden of their backlog of construction projects.

One is that apparently a bunch of suppliers and contractors for their projects have not been paid for a while, so those will default or go bankrupt as well, and cascade further down the economy.

The other thing is that Evergrande sold mostly through presales so now there are all those paid for but unfinished apartment blocks.

> .. and 1.7 trillion Yuan in assets

Note that this is the book value. Probably based on some valuation from years ago and only minimally adjusted, mean while property prices have crashed.

Moral hazard and inflation. If I know that I will be bailed out with a certain probability, then my actual cost of capital is much lower (since I am not expected to pay the entire volume of interest.)

For instance: why not make the investors whole again instead by giving them the "printed money" instead of going through the middle-man of propping up these failed giants?

In the US sure, where its blasphemous to slit the throats of the leisure classes for their excesses. In China they made Jack Ma disappear.

Through out history when it gets time for the Kings & Queens to waive the debt of the plebs away, cause they have nothing left to pay, the Rentier classes take the haircut.

In the US the rentiers have owned the Kings & Queens for a long time. To the point where any American institution cant touch them. This is not the case in China. There will be mass disappearances and cullings (already have been).

Jack Ma disappeared because he openly criticized the government.

The "leisure class" (of which many party members are part of) operate with impunity as long as they stay in the good graces of the party leadership.

You will only hear what the CCP wants you to hear. The rest of the "leisure class" flies under the radar.

The ‘Jack Ma’s that are aligned with Xi have their corruption protected. It’s still politics.

Well, start with the first 10, then remaining ones will emigrate and simply assign bounty for any head of CCP member based on the rank - until the Party is eliminated. How about that? Don't underestimate the money - it goes the long way.

> then remaining ones will emigrate and simply assign bounty for any head of CCP member based on the rank

This is a fantasy.

You definitely won't see anything like this in the US: https://www.businessinsider.com/china-tells-evergrande-found...

Like in 2008, bankers made a killing selling toxic products and socialized all the losses when everything came crashing down.

Actually it's the US government that made a killing with TARP loans and acquisitions.

Bankers lost their shirts in the whole thing - having to pay interest on those TARP loans or had to sell their shares to the government to get capital to survive.

List of banks acquired or bankrupted during the Great Recession

https://en.m.wikipedia.org/wiki/List_of_banks_acquired_or_ba...

If you have trillions on the balance sheet, then you have trillions in assets, funded by either debt or equity. In this case clearly debt.

It is confusing why you say “use balance this way” because it is a “balance sheet”. You can’t pull the word balance out individually.

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.

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 the money to pay the bank, or pay the bank in new shares. That dilutes the existing shareholders but doesn't force a fire sale of the properties.

Evergrande has more debt than assets - including property - I believe. They can sell everything at book value and they will still owe money.

If you sell one building at a large discount to pay your bills, the market is likely to rapidly devalue the rest of your buildings

That's assuming your sale is the only data they have about the value of your assets. But real estate sales happen all the time.

Now, if everybody is selling every building at a large discount, that's a housing crash, and highly-leveraged real estate companies are toast. But that should only happen if there is a real estate bubble, in which case a market correction is ultimately necessary and the entities that buy at the peak of the market are supposed to lose their shirts.

What you want to do in that case is not to save them. They're done. What you want is to prevent a cascading failure into the rest of the economy.

There is a real estate bubble, and everyone, especially government entities, are deeply invested.

Does this actually happen? A bank that owns real estate and collects rental income on it?

This happens all the time, they pony up the money and you pay interest on the loan.

In Dutch, interest is actually called 'rente'.

That happens all the time in the US and other countries. Banks typically try to sell off those repossessed real estate assets fairly quickly because they aren't really in the landlord business, but when there's a supply glut they may have to hold for several years.

US regulators also require banks to move non-performing loans and assets off the balance sheet. Allowing banks to hold them makes the balance sheet murky and hard to determine if the bank is solvent. In the 2008 financial crisis banks sold houses off in blocks of 1,000 at a time to hedge funds.

Of course. Some banks have their own real estate arms that sell/rent/manage these types of assets

Until people demand their RMB, and all the bank has is piles of building materials…

Banks don't actually have as much cash as they have deposits. When you take out a loan they just credit your checking account and debit your mortgage account, which cancels out. When you pay the seller they debit your checking account and credit theirs. The amount of cash they hold hasn't changed.

Whether thing backing the credit to the seller's checking account is a mortgage loan or the deed to the property likewise has no effect on the amount of cash in their vault.

> Until people demand their RMB

It's China, the authorities will just say "no." and then jail anyone who asks again.

They are massively underwater.

They have hundreds of thousands of unfinished apartments, and no money to finish them.

And even if they could, no one wants to buy the unsold apartments.

The average person in China owns more housing than the average person in the US or the EU.

This, with house prices being roughly equal but incomes being 1/6th on average, and there being about ~2.5B unfinished sqft of space (~2 sqft per person), and a rapidly shrinking population.

You do the math. Houses have been in a massive bubble in China for a long time, on nearly the same level as the Japanese bubble.

Who knows if it's finally going to pop. But the writing definitely seems on the wall now.

there is deflation in china right now. Why would you buy a house today if the money you have today would buy a bigger house tomorrow?

As a result, nobody can sell. The only way to move any inventory is to dramatically slash the price. Everyone is doing this, so you gotta do it even more than the next guy (or just hold on to the property but what if you need the money/can't maintain the property?). I've heard of 2mn rmby apartments in beijing going for 100k

Typically real estate companies use properties as collateral for loans. So they can't sell those properties unless they pay back the rest of the loan at the same time, which they probably can't.

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.

The problem they have is that nobody buys their properties...

Only in the sense that the problem with pyramid schemes is that people stop buying in.

Hard to rationalize with land rights that expire. You are just playing with government land for a while.

Underwater. Totally underwater.

They are so far under water that there simply are no buyers, at all, and there likely never will be buyers. A lot of this construction was just to keep the wheels spinning. There are entire cities that are empty.

China will not be captured by the middle income trap because it has already escaped the middle income trap. The middle income in my opinion has a different reason countries get stuck there and its by design. Because the road to high income is protected by western IP protection. Patents are way for the west to forever license fees for their high end technology, China is beating the west in new IP generation and hence will get an ever bigger share of the high end technology fees income. If one thing i expect western nations most likely EU nations to slip back into middle income status and get trapped their with their suicidal foreign policy.

I got this insight in 2016 when the US started its suicidal trade and tech war with China which they claimed would be easy to win. It was never about money or trade it was all about keeping asians down and dependent.

> 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 then a Chinese national must have 50+% stake in your business.

Just ask ARM what can happen if you go for a joint venture.

> For starters there isn't a level playing field.

Think about it, who determines what is a 'level playing field'? That's right, the US in this context. Every country has the right to determine it's own policies, and the US shouldn't have any say, and yet is applying pressure for it's own benefits.

The same goes when China insists on one-on-one bilateral country negotiations on the issue of the south china sea instead of multilateral negotiations.

Historically the number one country will always be putting pressure on potential the upstart countries, and Big countries will be big countries. The US especially is adapt at spinning up narratives, so calm down and take a look at the different perspectives.

The US is still nominally governed by and accountable to the rule of law.

Companies cannot use the court system in China to hold the government to account, the government is accountable only to itself.

This difference is irreconcilable.

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 other Western nations have both agreed upon and ratified.

The BMW joint venture was 50% owned by a Chinese auto company and the government when it was initially created

> it's essential to recognize that China aligns well with its WTO obligations

There is no way in hell I (as a foreigner in China) will win an intellectual property dispute from a Chinese company in China.

> ... then a Chinese national must have 50+% stake in your business.

Didn't they drop that requirement last year?

“Beating the west in new IP generation” is highly misleading. China is probably the best at IP theft, and they are certainly beating everyone at that game. Have a look at their EV cars that look like BMWs and Fords. Or their completely stolen Boeing plans. I sure as hell would not get on a fake Chinese plane, that’s for sure.

Not sure why this comment is getting downvoted. I think it's relevant to the discussion, whether people agree with it or not.

> it was all about keeping asians down and dependent.

Probably because of this. The US is allied to several prosperous Asian countries.

Yes, prosperous. But as prosperous as the US?

And being prosperous doesn't mean not being dependent.

Japan agreed to the Plaza accords

https://youtu.be/pU_yyadYgG8

Other Asian countries probably are going to be careful before signing up for something equivalent.

The US is chasing hegemonial "interests overseas". Every other country, that tries to develop a sovereign position in too many industrial sectors contradicts that. Thats how the US justify their industrial/political espionage on basically all their "allies".

Who all got seriously smacked down when they got too independent (from the Vietnam war to the Plaza accord).

Some bold claims with little evidence. GDP capita flattened at 13k is hardly “escaped the middle income trap”. IPs can be harmful to growth but then again China has never shown any intent to enforce IPs of western origin. There are no evidence of the US wanting to “keep asians down” - many of USAs asian trading partners enjoy less trade regulation. The “trade war” might be counterproductive but was a, imo mild, response to the extreme levels of protectionism exhibited by the chinese communist party.

There are enormous economic differences within China and given the scale of the country it is much harder to make these kinds of broad-stroke arguments. Looking at gdp per region [0], the main tier one cities are already clearly a cut above middle income countries, even a province like Jiansu with 23k$ in GDP per capita has a higher GDP/capita than Poland and a larger population than Germany or the UK.

[0] https://en.wikipedia.org/wiki/List_of_Chinese_administrative...

The problem with GDP per capita is that it doesn't necessarily correlate with wages (which is what we're talking about with middle income trap).

You can look at Singapore or Ireland for another example. They have higher GDP per capita than the US, but a lot of it's due to multi-nationals storing IP in those countries, and funneling cash through for tax purposes. It's not GDP that gets converted to local wages.

And in the case of certain Chinese regions, if you have companies headquartered there (with multiple sites at satellite cities), GDP measures are going to assign national GDP to that one region, so again, it doesn't necessarily reflect local wages.

1. 13K is technically the point where a country goes from middle to high income.

2. The Chinese economy is still growing more than most countries.

3. The US is clearly engaged in zero/negative sum economic warfare against China at the moment - for example read this article and the quoted views by admistration officials therein:

https://www.nytimes.com/2023/07/12/magazine/semiconductor-ch...

‘An Act of War’: Inside America’s Silicon Blockade Against China

    The US is clearly engaged in zero/negative sum economic warfare against China

I suggest that you read the history of post war trade relations between US and Japan. It was a bumpy ride! One big difference: General adherence to IP laws (China does whatever they want), plus both are democracies.

Related: Do you think China can catch-up to developed world in fab tech? I do not. They are hopelessly behind.

> GDP capita flattened at 13k

Flattened? It's growing something like 5% per year.

https://news.ycombinator.com/item?id=37171762

We really don't know how fast the Chinese economy is growing. The numbers are largely made up by Party functionaries with no oversight; they often exaggerate and falsely claim to be meeting goals in order to keep their jobs. Independent analysis based on satellite imagery and import/export volumes indicates the growth rate is probably lower, but no one knows for sure.

Um, no.

China killed itself off with its own policy of ‘for every two of us there should be one of us’.

Now their work force is shrinking and costs are rising fast. They aren’t competitive and the future is with India and Africa.

Fears about the Chinese real estate sector have been around for at least a decade. The amount of stuff that has been erected is just mind-boggling and unprecedented in human history. You cannot "rightsize" an exponential process.

But a spectacular bust to obliterate all speculative busts is not the deterministic outcome in this instance. The intermingling or state finances, state supported banks etc. is also a major characteristic of the Chinese system. In such a system you can push around and hide issues, redistribute the pain wherever it is politically acceptable and other such "conveniences".

One interesting question is whether the work-from-home behavioral change is further affecting the oversupply of commercial real estate in China as it does elsewhere...

Anecdotal but I will say the shift to WFH isn't really a thing in China from what I've seen.

Ya, housing is too small in general for that. If you work from home, it’s probably because you are drop shipping or doing your own business, but the office is needed. I never worked from home when working for Microsoft Beijing, although I would work from a cafe sometimes. My housing simply wasn’t good enough for WFH.

The intermingling or state finances, state supported banks etc. is also a major characteristic of the Chinese system. In such a system you can push around and hide issues, redistribute the pain wherever it is politically acceptable and other such "conveniences".

Japan famously has had decades of zombie conglomerates surviving despite insolvency. I don’t think state intermingling is necessary.

Who do you think was proping up those zombie conglomerates?

This video[1] was posted about 6 years ago but I think were starting to see the effects of the bubble they were talking about. In the video they said most new apartments were bought as investments as real estate is seen as one of the only "safe" investments in China. It would be one thing if most of these buildings were occupied by residents and only a percentage was investment properties but it sounds like there were many buildings in these new cities where practically every unit was an "investment property". The problem is these "investment properties" stop being investments when everyone has one.

[1]: https://www.youtube.com/watch?v=BcyYyyaPz84

When making a trade, being early is the same as being wrong [1]. You are right, the writing has been on the wall that eventually, the real estate pyramid scheme Chinese wealth is built on was going to crumble (the zeitgeist was that real estate was the path to wealth vs capital markets or other asset classes, and it was until it wasn't). We are only recently within sight of the event horizon, and there are no greater fools [2] left.

[1] https://news.ycombinator.com/item?id=27673627

[2] https://en.wikipedia.org/wiki/Greater_fool_theory

(ADVchina is a great channel btw, highly recommend the content if you're a remote scholar of Chinese macro)

Evergrande collapsing in slow motion is the limit of pushing things around

This isn't necessarily super bad in its own right even though it is a very large company and it signals that some of China's big developers are under water. The question is whether it is a harbinger or the whole of it. If the former there will be a domino effect just like what happened in 2008, but hopefully more limited to China. I imagine that 'heads will roll' is more than just a figurative expression here, Xi & co will do everything they can to lay the blame with others even though this clearly happened on their watch and is a failure of oversight as much as incompetence at Evergrande.

China real estate is a subject you could write several books on (and it probably has been done) it is a series of houses of cards that are all precariously balanced against each other and that is why the fall-out from this could be substantial.

It will be an interesting number of weeks, the larger questions that will determine some of the outcome are:

Who holds the debt?

Which other companies are overextended in the same way?

What will Xi & co do to deflect blame?

Are the assets valued fairly or are the worth much less in a sale than their book value? (the bigger the discrepancy the larger the effect will be, for a giant of this size to fall over would have to result in a significant effect on the market)

This could be everything between 'meh' and 'there goes the house' and I have no idea how you'd get to reliable information from inside China to get those questions answered.

The people are the ones who suffer.

Not the banks.

Evergrande sold homes that didn’t exist. People got loans from banks to buy those homes.

Citizens in China can’t file for bankruptcy. So even if they never get a home. They are in debt for life.

This is what you get living under the rule of the CCP.

People associated with Evergrande are very screwed.

Yes, the people who bought unfinished homes are screwed, too, and there's more of them.

But the whole entire country is screwed when their housing bubble pops.

This happened just 15 years ago with 2008 in the US. China and the CCP aren't particularly extraordinary. And they definitely didn't invent incompetence and greed...

> What will Xi & co do to deflect blame?

What? All of their issues are explicitly done by Xi via the three red lines.

Clearly the three red lines failed (as they were wont to do, they were too little and too late). So now someone needs to be blamed. There is no way that the Xi government will accept that they are in part culpable here (besides, there is no way in which the population could vote him out or that the government could fall, such as would happen in functioning democracies).

This is really a breathtaking legal situation.

Bankruptcy law typically trumps virtually all other laws, with not much to guide the court's discretion.

International bankruptcies are even weirder. In this case, US bankruptcy law has the power to intervene in ongoing bankruptcy proceedings in Hong Kong, Cayman's, etc.

Bankruptcy law protects debt-holders and the company, but not other stakeholders. As far as I know under US law the court has no basis to change anything for reasons of economic policy or impact. If the Hong Kong court pushes mainland Chinese interests, it's unclear to me how the other courts would respond.

Further, the due diligence required to qualify debts and debt-holders could uncover some unsettling relationships. I can imagine China viewing US bankruptcy discovery as an fishing expedition for intelligence.

Huge amounts, even larger consequences, and super-power competition would make this difficult even if the law were programmatic, but here so much depends on the court's discretion, and the court itself is the finder of fact. ("So much depends/on the red wheel barrow"?)

In the US we're lucky that these proceedings are mostly in the open and on the record (albeit sometimes only to record the results of debt-holder negotiations).

    This is really a breathtaking legal situation.

Yeah, not really. They issued USD debt and chose NYC as the legal jurisdiction to make their bond more attractive to overseas buyers. There are probably a myriad of overseas entities involved. It is very unlikely this will spread back to Mainland China.

    Bankruptcy law typically trumps virtually all other laws, with not much to guide the court's discretion.

No, sovereignty does. We learned that during the CoCo bond 100% write-down during the Credit Suisse forced merger with UBS.

What CoCo bond write down? Or do you mean those special bonds bank issues that go to zero before any other assets during a run?

Thanks for asking. Yes, exactly right. To be clear, I needed to Google the exact meaning of CoCo bonds. It would better to say AT1 bonds.

Google defines AT1/CoCo bonds as:

    AT1 bonds are contingent convertable (CoCo) bonds that are designed to functon as both debt and equity.

More: https://www.investopedia.com/terms/c/contingentconvertible.a...

BTW -- The writedown is incomplete. There are numerous court battles in numerous jurisdictions that may take 5-10 years to wind down. And, no, I don't think the Swiss Gov't will lose any of them. In the end, UBS will probably throw some pennies at these poor fools.

Those poor fools got a premium rate for this to happen. Like, the entire point of AT1 bonds is this can happen. Other banks have AT1 bonds, and I think they have also been written down.

Far from the Swiss government pulling a bait and switch, the point of AT1 bond is to have privatized safety net like how it is being used.

Excellent point about sovereignty and the absurd Credit Suisse merger.

> China’s property giant Evergrande files for bankruptcy protection in Manhattan

If it is "China’s property giant" why does it "files for bankruptcy protection in Manhattan" ? Why not in China ?

Because the people who lent money to Evergrande did so on condition that the deal was subject to the US’, and specifically New York’s, courts. Presumably because they trusted New York courts more than China’s courts in the event of a conflict.

I don't understand why NY Courts would provide this service to China. Do they get paid for it?

I am sure there are court fees and whatnot, but more importantly, a significant portion of the tax base in New York State and New York City comes from having a well developed and functioning legal/judicial/financial system, including the people working within it to produce predictable and “fair” results.

I put fair in quotes because even though it is obviously subjective, clearly many entities around the world, including China, or investors of Evergrande, however commingled they may be, or whoever else around the world, find it “fair” enough to seek these services in this jurisdiction.

Fair means more fair than the alternative. The whole world suffers from the human factors.

I don't know if they get paid for it, but it is apparently NY law.

https://www.lexology.com/library/detail.aspx?g=e36cde01-e97b...

Bankruptcy is just you admitting to the court/gov you're not going to pay your creditors, and you're ready to face the legal consequence (like reconstruction).

They filed bankruptcy in Manhattan because they are not going to pay their creditors in the US. That's it.

What is it about the topic of global finance that when someone asks a straightforward questions it illicits an answer wrapped in condescension.

I read the question as it implies Evergrande is not a "China's property giant", which it definitely is. But I might read it wrong. I'll edit out my condescending tone.

They filed in Manhattan in particular for very good reason - the venue is extremely good at huge, complex bankruptcies like this. It's non-trivial to unwind these financial obligations, and is really only done in NYC.

https://en.wikipedia.org/wiki/United_States_Bankruptcy_Court...

Companies open regional HQs all the time and they register corporations in those countries. Those are still technically independent legal entities with their own financial paperwork.

This is actually a great question! The United States bankruptcy court in the Southern District of New York is the best equipped place to manage a massive bankruptcy, likely on Earth. Every complex case you've heard of is managed there. It's a huge reason for NYC's success, and they know what they're doing.

If you need to wind down your car dealership, do it in Guangzhou or Monterry or wherever you happen to be. If you need to unwind GM or Enron, you'll do it in the Southern District Court.

https://en.wikipedia.org/wiki/United_States_Bankruptcy_Court...

It's been a long process, 2 years ago people were already talking about Evergrande falling

Psh, I've been talking about Evergrande failing since at least 2016.

This broken clock is gonna be right sooner or later - even if I gotta wait til the heat death of the universe!

Evergrande has been failing for a long time with no ambiguity

- Li Ka Shing, richest man in Hong Kong, just offered an immediate 30% off on his newest buildings for sale

-> This also result in immediate sold-out with 22X over-subscription.

Hong Kong is a completely separate market to mainland China, the latter is further segmented by region/city. Li more or less withdrew from mainland China in the past decade or so.

Smart guy ;) It's not his loan that's going to end up in arrears

I guess Caymanians will have to tighten their belts now.

My understanding is that lots of families invested their life savings into either having no apartments on paper or half-finished ones or some close to completion but unlivable.

Social unrest or govt bailout ???.

Who is holding the can for this one - Western investors ???.

Thread has far too much analysis premises on notions such as the US economy works the best and everything works like in the US that are simply stupid.

I think long term we are going to find out economics is more religion than science.

What is good for the macro (Spending on consumables during a recession) isnt good for the micro.

Hording assets that hedge fiat currency is good for the micro, but not good for the macro.

CPI/real inflation wasn't averaging 2% for the last 30 years, but probably was like 3-4%. Technology and out sourcing kept CPI looking like it was 2% + some gaming by each administration.

Nice, creates corporation in tax havens to maximize tax dodging, files for bankruptcy in country that can actually put disgruntled debt owners to task. Good ol' capitalism.

The countries of Delaware and Nevada are some of the most desirable tax havens in the world, you know.

Under "Good ol' capitalism" companies like Evergrande won't exist in the first place.

Edit: CCP imposing market restrictions causing average folks to invest only in real estate is not "Good ol' capitalism".

'free market' implies liberalism (Smith, Hume).

Capitalism only imply that the capital owners decide what is produced, where, how, and how workers are treated/paid. It's in the name. In china's case, it isn't pure capitalism, it's a soviet-style capitalism (or a capitalist sovietism?) so I agree it isn't faire to reduce it to capitalism.

Capitalism, like socialism, or postmodernism, or the labels conservative or liberal are almost devoid of meaning. But please, both the parent commenter and you keep arguing what the true meaning of capitalism is.

Meanwhile I will head to the market and barter some of my guns for butter.

The problem with these terms is not that they have no meaning, it's that they have no context-free virtue. Prohibiting leaded gasoline is good and prohibiting housing construction is bad, even if they're both government regulations. Competitive markets are good and concentrated markets are bad, even if they're both markets.

But people want to assign a label to the category instead of the instance, and then they fight with people whose instance doesn't fit the label -- or whose instance does fit the label but they refuse to accept it because they assigned a different label to the category.

Indeed, or put another way, nuance doesn't exist on the internet. I've seen this time and time again, where one party will blame something on capitalism or government regulation as some blanket statement, without saying which policies they're even talking about. At that point, it's a tribal opinion that was arrived at through emotional means, not logical means.

> Prohibiting leaded gasoline is good and prohibiting housing construction

Leaded gasoline an issue when govt prohibits housing construction leading to sprawl.

> Prohibiting leaded gasoline is good and prohibiting housing construction

Leaded gasoline an issue when govt bans density leading to sprawl.

that's a pretty deep meta level observation, the wrestling with a category to sully it with bad associations.

> Meanwhile I will head to the market and barter some of my guns for butter.

> Meanwhile I will head to the local apparatchik and request permission to barter some of my guns for butter while paying homage to dear leader.

Those are two distinct experiences.

* communist country is corrupt, falls apart *

Good ol' capitalism strikes again. Real communism has never been tried. Yet again

There sure are a lot of examples of awful attempts though.

Which country is falling apart? Or did you mean to write 'communist company' instead?

How can a declining population selling mostly commoditized goods support ever increasing property prices, that too when property is already overleveraged!!

This crash was always on the cards. Just a matter of when, and the when may have finally arrived.

> How can a declining population selling mostly commoditized goods support ever increasing property prices

It's pretty simple.

If you believed China was going to keep growing at 10% per year indefinitely - then the property prices were a bargain.

I think you needed to be mathematically challenged to believe that, but a lot of people did, or at least thought everyone else just assumed it would happen and they could get in and out before anything bad happened.

You also have to realize it wasn't foreign investment, and the Chinese are astoundingly nationalistic.

It was more like there was no alternative. Capital controls prevent regular Chinese investors (those without special Party connections) from taking their money out of the country. The domestic stock market is a joke. Banks pay low interest rates. So, the only thing they can do with their money is speculate in residential real estate.

The stock market in China is likely to look better than the property market when it implodes on leverage, and definitely bonds and savings.

People didn't want to miss out. That's it.

You're not going to buy a house on 3:1 leverage if you think it's overpriced by 30% just because you think the stock market is overpriced by 50%. You'd just keep your cash in savings.

The problem is - they believed it would keep going up - because it had been for almost everyone's entire adult life.

Exactly this.

Consequence of capital controls.

Peanuts.

Some popcorn, then?

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's the same movie everywhere.

But this is just theatre, on the order of 1 trillion disappearing in smoke is not going to sink the ship of any nation with 100 trillion in wealth assets.

edit: I should say this money doesn't really disappear in smoke, it's bourne on the backs of mostly middle classes amortization over the period of decades in hidden inflation taxes and marginal lower living standards.

This isn't their only problem though. Local Government Financing Vehicles are also having trouble servicing their debts - the only way they make money is leasing out land but the real estate sector had imploded. One of their biggest lenders, Zhongrong International Trust Co. also just failed to make payments.

Their economy seem to be swimming in bad debt.

local and provicial governments really dont matter. they do their best to support and bid projects for national champions and siting direct foreign investments where competitive. the areas which outperform (do least bad) have their executive talent siphoned to the central government. as FDI has dried up in the global slowdown restructuring and local reforms are due. one idea is to heavily lean on consumption which is palatable to some. i dont see that the chinese (or the japanese) feel that is a tenable path however

> local and provicial governments really dont matter.

Local governments are broke though and their LGFVs owe people a lot of money and can't pay.

The central government I believe is bailing them out - handing out longer term loans to kick the can down the road. It's still a strain on their financial resources.

>In that case US treasury policy was a bailout for uninsured depositors who are wealthy supporters of the ruling blue party.

I really doubt that David Sachs, Peter Thiel, and other wealthy right-libertarian VC bros support the "blue party".

ah yes, SV the rightwing stronghold

whats the practical influence of the libertarian in such environment? rules-for-thee; and looting

The whole financial and taxation systems are engineered to reward owners of wealth and discipline laborers. The outcomes are pre-defined. I thought this was pretty well understood.

Why would Chinese Communist party members bail out USD denominated bond holders when they didn’t bail out Yuan denominated bond holders in 2021?

where do you see the onshore forex market moving? merits investigation though

It's not until the tide goes out that you see who was swimming naked.

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!

It's not over but it certainly slowed down. If you think it hasn't can you point out any meaningful innovation? Other than leveraging llms to improve last century tactics and ideologies?

For sure political innovation is a terribly slow process. I don't believe leveraging LLMs will have a direct observable effect on that until civilization <> AI digests for little while longer. Yes we could certainly discuss AI governance (governance by AI)

There are two other areas you would seem to point at. Firstly other technological innovation will have momentous effects, I will not name the buzzwords but you easily know from what by excluding AI/LLM. The second and far more interesting is what I will call political innovation which is orthogonal to technological development, which is totally driven by changes in consciousness. I think that often looks like a stepfunction, because I hardly see the needle moving there outside the generation-to-generation cultural noise.

I’m never sure if news about China’s upcoming economic problems is written because such an event is actually coming or if the media writes it just for the clicks.

No one else can be certain either. It's always very difficult to tell whether the numbers coming out of China are real and how "real" certain markets are.

But personally I wouldn't buy into the "China is doomed" narratives that the internet loves to bring up yearly. Reality is usually far more boring and the issues (especially central gov ones) are usually far more deep rooted and survive long term like cockroaches.

Regardless the article links to some major long term worries in China's real estate which account for 30% of their assets. The number of defaults is declining but the housing market is still in a major slump:

https://www.cnbc.com/2023/07/26/china-signals-more-support-f...

Their problems always seem to look worse than it should be but functions better than expected.

I see China in 2023 where Japan was in 1991. Real Estate is falling apart. But in the end, the are the workbench of the world. They have Billions of people that can potentially work. Some of them are well educated and highly industrious. Japan survived so will China.

I mean economic crashes rarely cause a country to "die", but it will have a major setback in its economy and the individual people will suffer, if they aren't already. I mean I know lots of people are suffering in the west as well, despite there being plenty of jobs available and the economy being very good.

In the 80s Americans were worried that Japan would leave them in the dust, yet they've had 30 years with almost no economic growth. Not exactly a great roadmap for China to follow. https://en.wikipedia.org/wiki/Lost_Decades

In 1980, Japan had a huge population boom in the 35-45 age range, of energetic people who had grown up during a golden age of technological and economic development. Then they were hit by a demographic timebomb...

https://www.nippon.com/en/in-depth/a01001/

By 2060 Japanese children will be in the low single-digit millions, maybe 1/3 of the number when the experienced workers of the 80s were kids in the 1960s. There is literally nothing that can prevent it except mass immigration on a scale that would totally transform Japanese society (and which consequently will never happen).

China has the same demographic timebomb. China's peak labor was like in early 2010s I believe. Their birth rate has been declining the last few decades.

Average people in 1991 Japan were much wealthier than average people in China today.

The question is: do average people matter?

It doesn't seems so.

Where can I read more about Japan's experience at that time?

"Princes of the Yen" - both a book and documentary - well worth watching:

https://www.youtube.com/watch?v=jsO0JYu_5WI

This is a pretty good multi-part documentary from 2000:

https://www.youtube.com/watch?v=6HUrl1JwmJs

You can actual build a career by just keep predicting the upcoming economic crashes in China, e.g. Gordon Chang has been doing this for decades -

https://en.wikipedia.org/wiki/Gordon_G._Chang

his book is a great joy to read after 22 years.

https://en.wikipedia.org/wiki/The_Coming_Collapse_of_China

It is so laughable to the extent that many Chinese argue that those journalists and writers are paid by the CCP to brainwash the west to let people believe that China is not a real threat as it faces so many internal struggles. ;)

Now even Gordon joined DeSantis team!

I think it's pretty clear by this point that it's like an extreme slow motion train crash.

In a free economy China would probably have had a proper crash and perhaps even a rebound by now. But China is doing everything that can to prevent a crash that can be blamed on the government, but the problems are so fundamental that they're just postponing a full crash - one that will probably end up being much worse - instead of fixing the root problems.

A decade ago you could say that the people predicting China's economic crash didn't have anything concrete to support their arguments. Things seemed to be going well. Now there's many real tangible signs of deep economic problems. Youth unemployment, buildings not being finished, banks failing, .. It's probably even more telling that China's government is stopping reporting of relevant data. Not that they were super reliable to begin with.

China probably won't crash in the way USA's economy crash. But that's kind of the problem. A crash is essentially a rapid correction of the economy. China won't allow that. Which puts them on the path of serious long term stagnation.

Agree, it's so hard to tell nowadays and consensus of different media outlets maybe helps.

FWIW on Evergrande, I always find Patrick Boyle's channel educational and insightful. He has a few videos on the topic. https://www.youtube.com/watch?v=wXCpis_Mlwk&list=PLHC72UlhAt...

China has been tipped to fail any time now for the last 25 years. They have long term issues but they will play out over long term results. A whimper rather than a boom!

US economic crash has been forecasted perennially all the way up to 2007, none of them turned out true, until...

It's difficult to predict a dramatic crash, but it's much easier to detect an economy not doing well.

Some real estate related news from China:

- Country garden, China's second biggest property company after Evergrande, missed a mere 22.5M payments for dollar denominated bonds. It is trying to restructure a $340B debt owned. https://abcnews.go.com/Business/wireStory/chinas-government-...

- Li Ka Shing, richest man in Hong Kong, just offered an immediate 30% off on his newest buildings for sale

- One of China's biggest shadow banks skipped payment. These shadow banks provide liquidity to real estate companies, in short. https://www.bloomberg.com/news/articles/2023-08-16/chinese-s...

Some economic related news from China:

- China stopped reporting youth unemployment, estimated around 20-50%. Which is why nobody really thinks China is growing at 5%. https://www.washingtonpost.com/world/2023/08/15/china-econom...

- foreign investment fell down 87% from the same period last year, lowest level in 25 years. https://www.bloomberg.com/news/articles/2023-08-07/china-for...

- China's fertility rate dropped to record low 1.09 in 2022 https://www.reuters.com/world/china/chinas-fertility-rate-dr...

- China records fewest marriages in more than 3 decades https://www.cnn.com/2023/06/12/china/china-marriages-record-...

- China's exports fell by 14.5% in July from a year ago, while imports dropped by 12.4% https://www.cnbc.com/2023/08/08/china-reports-double-digit-p...

- China's economy slipped into deflation https://www.bbc.com/news/business-66435870

"China's sliding yuan could be next 'black swan event' for markets, hedge fund EDL says": https://www.reuters.com/markets/currencies/chinas-sliding-yu...

It would be interesting to see the blast radius, specifically in terms of countries like Russia, which is becoming increasingly dependent on the yuan as it is exiting its relations with the West , huffing and puffing: https://carnegieendowment.org/politika/88926

> the blast radius,

Global economy is the blast radius. China is the biggest economy by trade so it’ll ripple through everything

Could be, but the effects wont be so pronounced anymore i think. The biggest ripples have already passed through during covid and the time after.

The covid induced shortages like stock shortages, chip shortages, container shortage etc have already been dealt with and lots of companies have reduced their dependencies on china, etc…

Yes, it is not looking good for their outlook.

That said, nobody is seriously claiming Chinese youth unemployment at 50% unless you are looking at something like labor force participation rate, which is then a similar number for the US as well.

No, it can actually be 50%. Why do you think that's not serious? Greek youth unemployment was at 60% during their peak debt crisis. China's mega debt tsunami is starting to slam the shores right now.

China already tried its hardest to suppress youth unemployment rates. Student councillors in China are given strict KPIs to ensure their students graduate with a job. So obviously they co-operate with shady companies that give out sham employment contracts, and then pressure the student to sign, all to give out an impression of 'graduate employment'

China faces a severe crisis of over-education. China educated many university graduates, but has no industry to actually absorb them (Many such industries were crushed by the government, such as gaming, tech, or education).

China's factories desperately need cheap labour (and are starting to lose competitiveness because of this), but the over-educated grads are absolutely unwilling to go back to the factory floor like their parents. So you have millions of grads all dreaming of sitting in a prestigious office job, where none exists, so instead they all compete for government jobs, where there's 1 role for 100 applicants.

The Chinese government is already enforcing a streaming system in middle school, with at most 50% of students going to high school, rest going into technical education, but its too little too late.

Don't know about China and your country, but in my country they resolved unemployment rates by limiting the number of tickets that the ticketing machines print in every unemployment office. Now unemployment numbers are record low.

If they have many university graduates and lack cheap labour, why don't they let those graduates build robots or organize the outsourcing of the labour into countries with cheap labour?

How can there be a surplus of educated people who are unable to organize something profitable?

that’s a lot of words to not cite a single person saying 50%

A Peking University professor of economics says it is 46.5% if you use the same definition as in the US:

https://archive.ph/L6ZfU

wrong, that’s the labor participation rate

read your own article, you also just made up the thing about the definition in the US

>- China's fertility rate dropped to record low 1.09 in 2022 >- China records fewest marriages in more than 3 decades

Wow, at this rate, they might just overtake South Korea for lowest birth and marriage rates within the decade.

Wow, I thought you were making that up. It’s real. Why not just repeal the child limitations then? No reason to keep them in place if the rate is that low.

They did repel them, twice (once to put the limit to 2, now it's 3).

They also forcibly 'immigrate' SEA women since 2010[0], forming a combo with the Gulf countries : the Gulf enslave the men under false promises, then cartels raid villages, capture and sell the women (Vietnam is the only country where the state is strong enough to limit that). Sadly is hard to investigate the issue correctly, given China's lack of transparency, but it is possible that despite relatively closed borders, China now lead the world in sex trafficking, overtaking the Magreb (morroco to lybia).

[0] https://www.hrw.org/news/2019/10/31/chinas-bride-trafficking...

Chinese, especially in the upper tier cities, don't want babies now. Same as the West and for roughly the same reasons. Historically kids stayed with their parents until marriage who would then look after the grandchildren while they work. Now the parents are getting left behind in the villages or low tier cities while the kids fly out to the higher tier cities to work leaving no childcare structure and everyone grinding away at work with no time to find partners.

If you're talking about the one-child policy, that has been repealed in 2016.

That's kind of late ... Wasn't anyone there keeping an eye on the birthrate?

They were repealed several years ago

Fixing the consequences requires that they have to be repealed not now, not a few years ago, but rather 25 years ago.

Government control over reproduction leads to unintended consequences? Who would've seen that coming?

It's not automatically a bad thing.

China has done fantastically well economically, and in terms of health care, education etc. There are other countries which have had strict population control and have done well economically - such as Singapore, South Korea. I see nothing wrong with poorer countries keeping restrictions on population growth - so that they can increase the standard of living and make sure everyone gets education and healthcare.

A declining fertility rate doesn't just change change the population, but also the relative distribution of each age group. A fertility rate of "N" means the next generation will be "N/2" times as large as the one before it. Because of this you can easily model what a society, composed of successive generations of a fixed fertility rate, would look like. To keep things simple, imagine everybody gives birth to all their kids at 20. When they actually do doesn't matter, it would always converge on the same ratios:

----

Fertility Rate of 2 (average age = 40): 100 80-year-olds, 100 60-year-olds, 100 40-year-olds, 100 20-year-olds, 100 newborns.

Fertility Rate of 1 (average age = 63): 100 80-year-olds, 50 60-year-olds, 25 40-year-olds, 12 20-year-olds, 6 newborns

Fertility rate of 0.5 (average age = 74): 100 80-year-olds, 25 60-year-olds, 6 40-year-olds, 1 20-year-olds, 0 newborns

----

You can also estimate the ongoing population rate of change for each fertility group by removing the elderly generation, adding a newborn generation, and contrasting the new population sizes:

----

Fertility Rate of 2: 500->500 = 0% population change per 20 years

Fertility Rate of 1: 193->96 = 50% population decline per 20 years

Fertility Rate of 0.5: 132->32 = 76% population decline per 20 years

----

In the developed world most fertility rates plummeted around 1970. So, assuming nothing radically changes, we should start hitting our 'equilibrium point' about one life expectancy away, so sometime around 2050.

It may work in short term but then you run out of population in long term. And suddenly any gains from short term improvement is under a big question mark.

Why does China need 1.5 billion people?

    strict population control

SG/KR has this? Tell me more.

Had.

This is a crisis happening everywhere in the developed world. A stable practical fertility rate is 2.1. South Korea has the lowest fertility rate in the world, below 0.8, and there was no government meddling there. The US fertility rate is also plummeting and now down to below 1.7 and heavily biased by income. The birth rate for households earning < $10,000 is about 50% higher than those earning > $200,000 [1] with a near perfect linear relationship for incomes in between. And obviously there are way more poor households than 'rich.'

It's so odd to me that of the many issues people freak out about, this one ranks relatively low. We're looking at a non-speculative and entirely real demographic collapse of the entire developed world, in quite rapid order. For those who may not appreciate the impact, a total fertility rate of "N" means you will trend towards a system where the population of one older generation will be "2/N" times larger than the next younger generation.

So if you have a fertility rate of 2, each generation will be exactly the same. If you have a fertility rate of 1 then each older generation will be exactly twice as large as the next younger generation. So, for a simple model, imagine we all gave birth at 20. You'd trend towards a population distribution of 16 80-year-olds, 8 60-year-olds, 4 40-year-olds, 2 20-year-olds, 1 newborn. Systems of social security, healthcare, and the general economy will just collapse under that sort of pressure.

[1] - https://www.statista.com/statistics/241530/birth-rate-by-fam...

> Systems of social security, healthcare, and the general economy will just collapse under that sort of pressure.

Maybe we could buttress them by all the 4x to 10x productivity gains that automation has brought us. [1] Maybe we could cut back on all the useless, extraneous, low-to-negative ROI shit we're doing. We have options, here, that don't require a population ponzi scheme.

(Also, you can't be blaming this situation in China on demographic collapse, when it allegedly has massive youth unemployment.)

[1] Remember, just a few decades, when somehow, a single working adult could comfortably provide for a whole family? Why can't he, anymore? What has changed? We are more productive per worker, we have more workers participating in the economy, but somehow, you think we can't provide for everyone.

Expectations of comfort are always changing. Humans are a competitive species.

If the expectation for quality of life for the vast majority is living off of 1 income household, then that is an acceptable quality of life. If that expectation for the vast majority changes to quality of life by living off of 2 income households, then a quality of life from a 1 income household is no longer sufficient.

Also, expectations of work itself change. It could be possible that a sufficiently large portion of the population is simply unwilling to change bedpans for a price close to what old people themselves can afford (even if the cost is implicit from getting services from a family member). In this case, it becomes a political issue of how to allocate labor, i.e. who to tax, how much to tax them, and who gets the benefits of government spending.

> Remember, just a few decades, when somehow, a single working adult could comfortably provide for a whole family? Why can't he, anymore? What has changed? We are more productive per worker, we have more workers participating in the economy, but somehow, you think we can't provide for everyone.

In Thomas Piketty's Capital in the 21st Century, he argues that the period you're talking about is an anomaly historically due to the postwar boom of an unscathed US, that many people take as the historical norm due to recency bias; no one alive today was alive in the 1800s or earlier to see just how unequal life among the poor and rich was. He argues that this inequality is the norm rather than the exception for what is happening today.

South Korea had huge government meddling to psyop the population into thinking kids are only a burden.

https://www.prb.org/resources/did-south-koreas-population-po...

Thanks. I'd never read nor heard about this. It seems similar to Iran - another country with a national birth control program [1], which worked far too well, and which very few people know about.

[1] - https://en.wikipedia.org/wiki/Family_planning_in_Iran

Usa does have immigration to supplement the birth rate.

It does, but on a global scale this only works as long as there are enough countries with high birth rates. And birth rates are going down basically everywhere.

Except it’s been loosened after decades, and suddenly the economy tanks?

The more likely explanation is Xi’s authoritarianism and crackdown on the private sector. Anyone with a brain in China is trying to get their money and themselves out of the country.

It has been loosened because of the inevitable damage it is causing. Look at china's demographic pyramid. Their widest demography is 45-60. Their birthrates are very low. As those people age and there are fewer workers entering the workforce it will lead to social problems (as it did in japan and currently is in the west)

That's not to say there isnt a big crackdown on just about everything right now. There is. Bankers forced to read xi jinping thought and write essays on it monthly etc.

One thing didn't cause the other but it needs to be considered when looking longterm. Its effect will have an impact on the economy for many decades.

Of course, demography is destiny, but the point is the sudden worsening of China's economic outlook did not coincide with tightening of the one-child policy, quite the opposite. The challenge for China is that it got old before it got rich like the European nations or Japan, and this transition will be much harder to navigate.

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?

Yes, but the fertility rate drop is just too fast in China. There will be way too many old people requiring care for too few people in the productive age.

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)

China still has ~20% people in agriculture with automation that can be bought down to 5%. That should free enough resources.

Truth be told they didn't have much of a choice, as it prevented around 400mln births in a country that has been a net food importer for over 20 years:

https://www.cfr.org/article/china-increasingly-relies-import...

Ka Shing, richest man in Hong Kong

Talk about nominative determinism...

I wonder how nominative determinism works across languages. Given enough languages and names, one is bound to come up with any number of people whose life is nominatively determined.

not unlike star signs

Indeed, so not worth taking seriously. ND is a fun little observation though, when it does happen from time to time.

The economic crisis has been brewing for a long time. No country can just ignore basic economics forever. They have been living off of borrowed time (and borrowed money) for a while now. The bill will come due soon. This is eerily similar to what happened to Japan in the 1990s.

Missing : real estate invested missing money into sprawling conglomerates. E-car brands and other industries.

SCMP says CKC Holdings only reduced prices by 16% on less than 300 units in a single building in a non-premium location. The 30% figure only comes from shitty, click baity "news" sources. Property analysts felt that 16% cut was in line with the market. No one with deep understanding of that market is clutching their pearls too tight.

To soften this a little bit, and I mean a very little.

The youth unemployment numbers are hard to judge, could be right but it is hard to tell on the outside.

The fertility figures are a long term issue, China is not alone in that but something to keep an eye on.

Those import/export figures... now that is the the most telling of how the economy is fairing nowadays. For all the speculation I have heard for decades, that is the most alarming stat I have seen. That is where the rubber meets the road for an economy that is so depended on those things to keep society function vaguely well. Stay tuned...

I heard someone on the radio recently speculate that due to the political climate China could prefer and produce a Japanese style decades long unwinding of economic bubbles vs a western style resolution through crisis. Of interest also was the level of Municipal debt and it's stratification between provincial higher default risks and a handful of real high flyers.

Except they will be doing this at a much lower economic situation than Japan.

Japan still got to being a first world country, but then busted. China won’t get there.

Japanese demographics were also much more stable (even if low in general). China will have a much more dramatic demographic shift. The fertility rate was ~6 in 1970, ~2.8 in 1980 ... 1.09 in 2022. These strong generations will continue retiring, but there will be few young workers to replace them.

Don't know where you're from or your experience but you maybe want to update your priors on the meaning term first world, which peaked in usage roughly 1948...

https://books.google.com/ngrams/graph?content=first+world&ye...

The mean and median living some places might surprise you. For example visit HongKong, Singapore, Taipei, Tokyo, or a mainland city this millenium. Or dont'!

First world, it mostly conjures automobile culture and car infrastructure which is nothing special these days but check the world's largest car makers... you would guess Germany Japan or even the USA recently no?

Why was this downvoted? There is plenty of truth here.

> China stopped reporting youth unemployment, estimated around 20-50%

youth unemployment data is just another toxic data that rarely used before in China and others just like "Total Debt" metrics that only used against China for some reason.

> China's economy slipped into deflation

Mainly caused by normalizing pork price, last year it went wild due to swine flu.

> Mainly caused by normalizing pork price, last year it went wild due to swine flu.

Seriously? One food can cause the entire economy to slip into deflation?

Pork price is a huge component of Chinese CPI. Also the price reductions were massive, like double digit huge.

https://www.cnbc.com/2023/08/09/china-reports-smaller-than-e...

"A 26% year-on-year drop in pork prices, a staple food in China, contributed to the overall decline in the CPI in July"

There is a sort of balance where one market going down makes another go up. For example, real estate assets everywhere but China now look better in the long term.

Bank crashing = money printing = asset values go back up. Can't lose.

> Bank crashing = money printing = asset values go back up. Can't lose.

If you buy real estate right before a housing crash, you immediately lose a lot of money vs. having just sold or not bought it, and even if the prices recover in the long term it can take years.

Meanwhile you can't refinance the loan at the new lower rates because you're underwater and no longer have the collateral for a loan that size.

Then there's the "risk" that people learned the lesson of the last housing crash and don't do the same thing, i.e. reinflate a housing bubble right after it pops. This wouldn't even have to be not lowering interest rates, it could just be lowering them but continuing the existing momentum behind relaxing zoning rules so the lower rates can fund new construction. Then the low rates save the rest of the economy but real estate prices stay reduced because the lower interest rates are offset by (and pay for) new construction.

You can definitely lose.

I should have been more clear - this is to indicate that "we" can't lose, meaning society as a whole. Individuals for sure can lose their shirts, but overall, this bank collapsing won't be an issue.

This bankruptcy happening and not causing a huge, devastating, world ending crash is a gigantic feature of the Chinese economy. Not a bug. It means asset values in China are deflating in a semi-controlled manner.

People love to complain about the banks that are "too big to fail". Now this huge company that should really be too big to fail is failing, and the world isn't ending. The only people who are upset that everything isn't tumbling down, are the ones hoping for the crash.

Expectation is that across the world, sustained med-high interest rates will cause deflating of multiple bubbles, Private Equity, zombie multinationals, residential+commercial RE.

It doesn't feel like a "black swan" but some of these approaches to making money could be going away. Dropping interest rates and printing money requires a set of circumstances which aren't there.

Deflating those bubbles will destroy a lot of individual wealth, that is where it's going to get bumpy.

Yeah, if you buy a house when you have little equity, your equity can go up manyfolds from the purchase, but at the risk that if you time the purchase badly, you’re in a bad spot for many years.

“Leverage goes both ways”

>"real estate assets everywhere but China now look better in the long term."

They do not look better. They look inflated and unaffordable. If not fixed this will have social consequences at some point and it won't be pretty.

Housing can't be inflated and unaffordable at the same time. Someone is buying properties, driving prices higher. Those someone can definitely afford housing.

> Those someone can definitely afford housing.

By "unaffordable" people mean that median person/poor person has problem with paying for housing. Not that no one at all can afford it.

65.8% of Americans own a home as of 2022. Which covers the median person and some below that.

Inflated by investors buying to turn them into rentals that are unaffordable.

They also can handle $100,000,000 boats. I am so happy for those poor souls

The word "affordable" means "not expensive".

higher is not better

Will the stock market crash of 1929 happen again now?

https://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929

What is your rationale for this comment? Can you provide more detail around metrics and financial indicators?

Evergrande files for bankruptcy protection. The China Evergrande Group is the second largest property developer in China by sales. "History never repeats itself, but it does often rhyme", etc.

The chinese stock market (Shanghai index) has been through lots of boom and busts. It didn't affect western market in the slightest. I'd not expect otherwise. The only difference is that if the Chinese economy tanks hard (great depression style), this might be contagious to the rest of Asia and eventually to the rest of the world.

But any guess is good if that happens.

Agreed a crash in China would have fallout but not 08/09. The Chinese housing market was fueled by the familial need to own a house. Which led people to lead no matter what people would buy property, basically "stocks always go up"... "housing always goes up"...

We can never run out of buyers!

Probably not we have better printers these days

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