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The United States thought the same thing and when through a housing crisis during 2008 and has been paying for it ever since with a frail economy and anemic growth. What China is doing now with Evergrande is exactly the approach the US took in 2008. Simply put, bad debt must be written off if you don't want to zomibify parts of your economy. Pretending that you can grow your way out of debt is fantasy as clearly evidenced by Japan and the US over the past 30 years. The fact that China has chosen to sweep this problem under the rug by rescuing Evergrande will be a drag on future growth and encourages future moral hazards. I don't predict doom and gloom for China, only that this will be a millstone around it's economic growth with additional systemic risk.

If an asset depreciates or isn't worth what you paid for it, refusing to write down the asset and take your medicine sooner rather than later just drags out the pain. Better to take your medicine and get the pain over with so your economy can quickly reallocate and quickly bounce back. The losers must lose. This approach does not go down well with politicians, but is the best medicine for a sick patient.

The reason it doesn't go well with politicians is because, in a massively complex modern economy, the "losers" in an unexpected default are nearly always a wide swath of average citizens and public institutions. Why? Because they are the ones who dump all their savings into "safe" mass market investments like blue chip stocks and corporate debt ETFs.

Yeah, I said "fuck it" when they started buying corp bonds… DeFi only now, and just finished getting an audit for a decentralized derivatives protocol that was seeded funded with a decentralized incubator.

We're planning on the protocol being able to lend liquidity into existence out of thin air (well more accurately, taking advantage of collateral dynamics and protocol stablecoin flows) and packaging that debt into decentralized stablecoins denominated in $…

Thanks to the moral hazards, they've have motivated me and others to pursue alternatives that in their eyes have systemic risk, and I'd agree, very risk to their bailoutistan system :D

"I don't know why people keep comparing China to Japan"

Because they both went through hyper-growth periods after economic shock (war for Japan, and for China war then Mao).

During that period of hubris they took on a lot of debt.

They both had declining GDP growth and bad demographics.

The negative momentum overwhelms the positive moment at some point.

Your comment misses the bit were Real Estate is not a productive asset. Building new buildings on land is productive, but like Canada's housing bubble, when homes double in value quickly, it's just inflation.

" They'll just need to make sure they can properly incentivize more population growth to keep the positive feedback loop humming along."

I hope you realize the folly of this statement.

Imagine if we all just did the 'body count for GDP strategy'.

Much of Evergrande's debt is literally housing that hasn't been built yet. But has been paid for by investors/speculators.

So there is no sense in which it's an asset.

It's actually more of a Ponzi scheme with concrete accessories.

Empty and decaying real-estate is a liability, not an asset.

I disagree - tales of the decaying infrastructure in China is greatly exaggerated (though, like the USA there is decaying and unrenovated housing). The majority of China lives in rural areas, until this is no longer the case, urban housing will always be a large asset in China due to their attempts to urbanize the entire country.

There are 90 million currently empty homes in China.

So what? USA has more empty homes per capita (17 million for 330 million citizens, vs. 60 million in China for over 1.3 billion). If you compare it by density it looks even worse for the USA.

In any case, it's not really a useful, or meaningful metric anyway.

https://www.abc.net.au/news/2021-09-21/china-property-bust-e...

https://data.census.gov/cedsci/table?t=Vacancy&d=ACS%201-Yea...

> So what? USA has more empty homes per capita (17 million for 330 million citizens, vs. 60 million in China for over 1.3 billion)

I have no horse in this game, but 17/300 = 5.2% and 90/1300 = 6.9%. (edit: wikipedia says population of China is 1.4 billion, which would give 6.4%).

you're using the wrong numbers here.

17/330 = 5.2% 60/1400 = 4.2%

the grandparent poster was mistaken (the 90 million represented the amount of people the empty housing could house, not the amount of empty homes itself) so I found real number and included the link.

Oh! That makes a difference.

Yeah but out of that USA total, how many vacant properties are from foreign investors, let alone Chinese investors trying to stash their wealth out of reach of the CCP.

A Chinese friend once explained to me that local governments in China have very little ability to tax. Taxes all get sent to the central government and the central government never sends enough back to the local government. The most efficient way for a local government to raise revenue is to turn farmland into developable land and sell it to developers. Many of these empty homes come from such schemes. Obviously some of these developments turn into vibrant communities, but there are some that remain mostly empty and are held by individuals who are speculating that the prices of these empty condos will go up.

Chinese people only save to buy houses on debt with 5:1 leverage.

The difference is there investments are all leveraged, whereas Westerners have a larger share of investments that are in equities with no leverage.

It's easy to have a lot of "savings" when 100% of your investments on 5:1 leverage are appreciating at 7%+ per year for 2 decades.

It's also easier to get that much appreciation when it's all debt fueled and on leverage.

He compared them to Japan because the largest attribute of their economic problem is identical - high leverage on overpriced real estate.

> ..can properly incentivize more population growth ..

did the one child policy mess that up? What i understand is China is short on women and the population situation is going to get worse before it gets better.

yup - that's China's #1 problem IMHO. This is exactly why literally less than 6 months ago they implemented a three-child policy in order to incentivize more population growth with family planning, the elimination of private tutoring, etc. in an effort to drastically reduce the cost to raise a child.

China has a lot of issues, one being a questionable government for those who are not Han, but China's existential issue is making sure the population of (young) people remains high and growing steadily.

Anecdote: I've talked to many people from China, and they all say almost no one wants kids. And for similar reasons to what people say in America (cost, stress, the environment). So I don't think the policy change is going to help them, too little too late.

yeah, that's exactly why it's the #1 issue. maybe their solution is opening up to immigration finally

How will they make immigration attractive?

If you want a provocative view on China, check out Peter Zeihan: https://zeihan.com/video-dispatch-chinas-demographic-decline...

tl;dr: China's population has already peaked and in 2070 there will be 50% of the current population.

The end of the one-child policy brought just about zero improvement in birthrates or the demographic trajectory of the country.

I would not be very confident that any of what you are talking about is going to fix China's massive demographic problems, and such policies have generally had limited success elsewhere.

Additionally, with the new entrants to the workforce in 15-20 years already having been born, even if improvement was seen, you're talking many decades before you're going to have that said improvement in births be sufficient to stop the workforce from shrinking, dependency ratios getting worse, etc.

China loosened it's policies about 20 years too late.

Because of "chà bu duō" and " dòufuzhā gōngchéng" buildings (I know, redundant), it's NOT really an asset in the normal sense.

https://chinese.yabla.com/chinese-english-pinyin-dictionary....

https://www.sourcingallies.com/blog/cha-bu-duo

https://en.wikipedia.org/wiki/Tofu-dreg_project

https://www.youtube.com/watch?v=s-2DtL-Wjkc

The presumption that you can compare US financial/economic norms to Chinese is Epic Fail as an assumption. You have to take your head out of the clouds and challenge you ideals assumptions that underlie your understanding of the world!

I can post videos of decaying buildings in the USA too - not really super relevant.

The fact is that China is urbanizing at an unprecedented rate. You don't really have to believe the government - just go visit basically anywhere in China.

The buildings in question are new though, not old decaying buildings. They are just very shoddy constructed with corner cutting everywhere. How prevalent? It’s hard to say. Guess we will find out in a few decades.

New buildings can be decaying liabilities just as much as old ones. More so if they have been constructed badly.

The point you’re missing is many of those home were bought as investments. No property tax makes them good stores of wealth, no carrying costs and my god a less risky investment than Chinese company equities.

Problem is that despite the urbanization potential that doesn’t mean the properties are correctly priced or that they’ll continue to go up.

I spent some time in another Asian country that has a per capita GDP 1/10th of the US, yet housing prices are comparable to the mid-west US and most are empty. Most are owned by the ultra rich and used to launder money. And I’m not talking prime location, these are basic apartments on the edge of the city going for $100,000USD or 30-40x average annual salaries. Unless GDP goes 3x no way those prices will hold.

It’s a massive bet on continued income growth and demand for real estate which is not a given, which Japan showed with its massive property bubble.

That's the poor people's speculation.

Real money just buys western passport (for themselves of their children via birth tourism) and buy real estate on the North-American west coast.

Most of the apartments I lived in in china have been absolute garbage. In shenzhen - most were probably not more than 10 years old. I even had to go the hospital once because my hand went through the glass of the bathroom door, when I tried to push it open.

Meanwhile my current home outside china is almost 100 years old and not garbage.

Lots of videos of the new apartments in China where the walls crumble or are hollow. I remember reading that developers get huge subsidies from the government to build these buildings and either cut corners to pocket the money or never complete the buildings. I donno if that’s true or not. But seeing the tofu houses is makes me feel like it’s true.

There is a special name for this tofu-dreg projects

https://en.m.wikipedia.org/wiki/Tofu-dreg_project