China has a unique quirk to its real estate model: people pay up front for their homes, then wait for them to be built. The one holding the note on a house in China is the bank.
Sep 5, 2023·edited Sep 5, 2023Liked by Peter Nayland Kust
People have been predicting all sorts of catastrophes happening in China for years. Bank collapses, three gorges dam bursting, real estate collapsing, covid calamity, Xi will be ousted by a rioting populace, and more. I’ve been waiting for the last shoe to drop for a long time now…until it does I’m chalking it all up to wishful thinking that amounts to nothing.
Yeah, I’ve read all the stories the dam is flexing, covid deaths are out of control, there are bank runs, and entire shadow cities of empty apartments tanking over-leveraged financiers, Xi government is doomed, and more. This has gone on for years. People get a lot of mileage out of dangling the carrot of doom and that includes covid doomsayers. It’s an industry that sprang up that gives people the impression that any…day…now there will be a reckoning. Yeah, well, like Al Gore’s catastrophic predictions, how long can the fish remain on the line before they get tired of false hope?
In terms of the economy, it's not a question of "collapse" but rather which dead end will it have.
China needs to liberalize their economy in order to stimulate consumer demand. The problem is they can't do that without liberalizing the political system, and the CCP is not about to give up that much power.
Which leaves government stimulus, all debt financed, as the means of boosting the economy. This is what they've been doing since the Great Financial Crisis, and they are about maxed out on how much more stimulus they can apply.
All of which greatly limits the potential outcomes for China. If Beijing lets Country Garden implode with no bailout, a Lehman moment is likely. If Beijing does bail Country Garden out they are looking at a zombie real estate sector depending on government spending, which is almost certain to lead the economy further down the path of Japanification, which will be worse for China because China's per capita income is so much smaller.
Does this mean apocalyptic collapse? No. But it does mean something other than prosperity is what lies ahead for China.
Just wondering... has Country Gardens extended a commensurate grace period to its debtors?
China has a unique quirk to its real estate model: people pay up front for their homes, then wait for them to be built. The one holding the note on a house in China is the bank.
Reminds me of an old Woody Allen line:
"We'll manage your money until there's no money to manage."
Perversely, this could also describe the policies of the Federal Reserve
People have been predicting all sorts of catastrophes happening in China for years. Bank collapses, three gorges dam bursting, real estate collapsing, covid calamity, Xi will be ousted by a rioting populace, and more. I’ve been waiting for the last shoe to drop for a long time now…until it does I’m chalking it all up to wishful thinking that amounts to nothing.
The real estate bubble HAS burst in China. That one is definitely happening.
As for the economy collapsing, right now that's still problematic. It COULD happen, but it's no guaranteed.
Yeah, I’ve read all the stories the dam is flexing, covid deaths are out of control, there are bank runs, and entire shadow cities of empty apartments tanking over-leveraged financiers, Xi government is doomed, and more. This has gone on for years. People get a lot of mileage out of dangling the carrot of doom and that includes covid doomsayers. It’s an industry that sprang up that gives people the impression that any…day…now there will be a reckoning. Yeah, well, like Al Gore’s catastrophic predictions, how long can the fish remain on the line before they get tired of false hope?
In terms of the economy, it's not a question of "collapse" but rather which dead end will it have.
China needs to liberalize their economy in order to stimulate consumer demand. The problem is they can't do that without liberalizing the political system, and the CCP is not about to give up that much power.
Which leaves government stimulus, all debt financed, as the means of boosting the economy. This is what they've been doing since the Great Financial Crisis, and they are about maxed out on how much more stimulus they can apply.
All of which greatly limits the potential outcomes for China. If Beijing lets Country Garden implode with no bailout, a Lehman moment is likely. If Beijing does bail Country Garden out they are looking at a zombie real estate sector depending on government spending, which is almost certain to lead the economy further down the path of Japanification, which will be worse for China because China's per capita income is so much smaller.
Does this mean apocalyptic collapse? No. But it does mean something other than prosperity is what lies ahead for China.