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Comment by spywaregorilla | Hacker News Reader

I don't think this article is right on the cause. China's biggest problem is, imo, the continued slow motion train wreck of evergrande and its real estate market collapsing. So much of China's growth was money sloshing around due to things getting built. But that seems to be harshly falling. There's hundreds of billions of debt hovering around default and the best these companies can do seems to be to double down on building and selling more buildings, which I sort of expect people don't particularly want to buy. General supply chain issues and covid affect this too. Food availability due to lower exports of wheat from russia and ukraine could cause an issue too.

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Yes, their entire real estate market has been in slow motion collapse for the better part of a year. Too many articles on the state of the economy are using the Russia crisis to drive their news cycle, when actually most of the turmoil was already happening.

> China's biggest problem is, imo, the continued slow motion train wreck of evergrande and its real estate market collapsing.

It's at least an order of magnitude larger of a problem for China than ties to Russia are.

For anyone unaware, nearly 2/3 of China's household wealth is tied up in real-estate assets (for the US it's < 30% of household assets in real-estate). That's a doubling over what it was a decade ago. China's socio-political stability is particularly bound to the condition of their real-estate market. A crash there would be devastating; if housing were to fall enough to revert back to that asset class being 1/3 of China's household asset base, maybe $30 trillion in national 'wealth' would have to vanish.

Well, that's to be concluded.

An additional stress on the system could make the problem exponentially worse.

> Food availability due to lower exports of wheat from russia and ukraine could cause an issue too.

Why is this an issue for China anymore than the West?

In fact, China has the majority of the world's grain stash. https://asia.nikkei.com/Spotlight/Datawatch/China-hoards-ove...

Chinese food security is generally lower than that of the west

https://impact.economist.com/sustainability/project/food-sec...

The US ranks 9th whereas china ranks 34th. They're not going to famine or anything but food prices, or really just inflation more broadly, could be an issue. The reason china stockpiles grain is because it doesn't produce enough for itself.

Where did the comment say that its more of a problem for China than the west?

"China's biggest problem is.... food availability due to lower exports of wheat from russia and ukraine could cause an issue too."

The same logical structured can be applied to not China:

"X country's biggest problem is ... food availability due to lower exports of wheat from russia and ukraine could cause an issue too."

Sure. Does every sentence in a discussion of X really require a disclaimer that the thing mentioned is not necessarily unique to X and can also be the case for not-X?

Sure. Does saying "China has a border." add value then? It's not necessarily unique to China and can also be the case for not-China?

Depends if it's relevant to the topic at hand or not.

So you concede that it's about relevancy and not logical structure then.

I've never claimed otherwise, since you didn't claim that it wasn't relevant to Chinese markets, but only attacked an imagined claim about it not being relevant to other markets.

Because China is not food independent. Most of western countries are.

Based on what ranking ?

Calories/per resident? There's many ways in which that is flawed.

Western countries have the best food security in the world:

https://impact.economist.com/sustainability/project/food-sec...

Can China just not let Evergrande fail? I'm assuming the debt is largely held in China, the buildings are in China, and debt holders who expected to be able to get their money back are going to be disappointed but in an authoritarian government can you just force people to take the loss without letting that loss transmit to the larger economy?

A lot of it is tied in with local government. The central Chinese government inadequately funds local governments. The local governments close the funding gap by selling/leasing land to developers (often kicking citizens off their land without proper compensation). Chinese citizens buy the properties due to a number of cultural and financial factors. There is not much else to invest in. Savings interest rates are very low. Chinese citizens often distrust the local stock market due to corruption issues and shared memory of previous crashes. Ordinary Chinese citizens are not permitted to invest overseas. Local property is the only reasonable investment to many. Many of these properties are never even lived in. However Chinese citizens are going to stop buying eventually as property prices are already well into greater fool territory. When that happens, local government will be in trouble.

>Chinese citizens buy the properties

not so fast, they buy 70-year leases

Sometimes as short as 20 I believe, although 70 is common. They do own the building, but yes the land is always on leasehold terms I believe. Will the government renew it? They say yes, but ...

It's not just evergrande, it's all property developers pretty much. It's a real estate bubble popping when an immense portion of wealth and growth is in real estate.

Yes, much higher portion of wealth is in real estate in China than other countries, this is key to understanding the problem. Real estate is basically a savings account for many people.

YEAH! Those chinese amateurs should do what we do in the USA ; just print more money and bail them out, and let their competitors acquire the company for pennies on the dollar after our government employees have had the opportunity to let all the people in their family know that trillions in bailouts is n the way -- oh yeah, and dont forget to setup an LLC in your spouses name to slurp off such bailout funds as well.

(This seriously happened BTW, if you dont recall)

could someone explain in a few sentences why it takes so long for Evergrande to collapse?

They're carefully trying to change ownership of the hot potatoes so that as many of them are in foreign hands as possible.

If Evergrande defaults, foreign bondholders will claim their collateral.

So instead, for example, they have state-owned companies buying up Evergrande's assets, then Evergrande using that money to pay back local creditors, so that Evergrande is eventually left owning neither money nor assets to pay back foreign bondholders. Nothing left to seize in court.

Meanwhile, they are trying not to create a shock in real-estate prices that would undermine the other overleveraged developers, such as would occur if Evergrande unloaded all of their assets at once. Each developer is balancing their debt-to-asset ratio, so if their real estate assets drop in paper value, they end up in Evergrande's position.

Foreign bondholders appear to be playing along with this, which is fascinating; it suggests that either those bondholders are, too, looking to offload their hot potatoes and want to preserve the appearance that they're still worth something as they search for buyers, or else they're using those bonds as collateral for their own loans. As long as credit rating agencies play along and don't drop the credit rating to full default, they may be able to do so.

Evergrande (real estate in general) is undergoing intentional, controlled unwinding initiated by CCP kicked off by "three red lines". It was never going to collapse, the entire point of Evergrande was to avoid an Lehman moment by preempting it.

That was the intention, yes. It remains to be seen if it can be pulled off.

Too big to fail combined with an autocratic government ostensibly built upon stability. Who dares push it into bankruptcy and risk the certain wrath of that government?

To be fair the same happened to Freddie Mae and Fannie Mac, which were bailed out at the start of the 2008 financial crisis. Eventually they repaid their bail-out money and then some, but back then (2008-2009) that was not seen as a possibility.

At a more general level, I'd say it's very tough to let companies like Evergrande/Freddie Mae&Fannie Mac go down the drain because you risk the whole system going down, no matter if you're a de facto autocracy (like China) or a not so perfect democracy, like the US.

If these companies have been accurately summarized in the media, I would consider these very different. The mortgage companies were holding loans on a lot of individual houses, etc with concrete utility that were in actual use, where replacement stock was unavailable.

In Evergrande's case they seem to have giant projects that are earmarked as investment speculation as opposed to intended primary dwellings or immediately rentable. It is entirely possible that whole districts of buildings are never of enough utility to draw residents at any price above maintenance.

A company can go broke with either mistake but if a government knows the need for the collateral mortgaged actually exists then bounds from the macroeconomic situation apply so their shoveling of money will have an end.

A large source of CCP elite's wealth comes from Evergrande, Sunac, Country Garden.

A large chunk of Chinese savings is tied to it. If they allowed people to sell or liquidate their shares, it would cause real instability.

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