Some of these companies have trillions in RMB on their balance sheets.
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.
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.
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.
When the housing market is good, this scheme brings real estate costs down, because you can buy cheaper "not-yet-build" flats or houses, and the developer can seek funding without overpaying on the bank loans. But if the housing market tanks, the development freezes, and the first buyers take a loss. I don't know about China, but in some countries such obligations are mandatory insured from the default, so people can get at least some of their money back. In others buyers are left with a piece of land with unfinished building.
Basically you can not have enough cash on hand to purchase the next piece of land for your development, but you want to always plan for the next step.
Developers compete with each other, so they will always take as much leverage as allowed, but the rules are adjustable by lenders. Lenders compete too, but they usually wind up backed by a central bank or other political entity, and that's the point at which changes can actually be made. Of course, there is no guarantee these changes won't create problems (Three Red Lines were a decade too late) but they can be made.
China lacks a safe financial system that the ordinary person can invest in, the way that an American can park funds in an index fund and expect a reasonable rate of return. (The Shanghai and Hong Kong indices are not as healthy as the general economy.) It also lacks generous pension schemes like those in Europe. So part of the reason this is so bad is because most Chinese citizens put their nest eggs in real estate, and now the bubble has popped.
The Chinese predisposition to invest in real property is much more cultural (and irrational) than what you suggest. The Chinese stock market is actually much more rational in this regard as for quite a while you could buy Chinese real estate stocks with pennies on the dollar, price to book ratios much less than one. Traders know the real estate bubble is going to burst sooner or later and the stock market priced this in. The real estate market which mostly consists of individual buyers didn't quite get the memo until recently.
Speaking personally, in Chinese circles, the social pressure buy an expensive apartment is honestly overwhelming, and it's not because people knew that the property market was a good investment, it was just something they thought a respectable person should do once they earned some money. Family members without any financial literacy kept thinking I was an idiot for holding FAANG stocks instead of buying an apartment. AFAICT I'm the only person in my social circle (including people who should have known better) that has avoided the recent property slump (in Hong Kong) by steadfastly refusing to enter the property market at its height a couple years ago. It's nice to not have people nagging me about it now.
I guess the word I was looking for to describe the Chinese financial system is 'immature.' It is unfortunately not uncommon for some Chinese firm to get delisted for accounting fraud or some other type of impropriety, so investing in the indexes is a worse idea than it is in many other countries. And then there's all the marketing of dubious financial products that people inevitably lose their savings on and protest; before people swarming the Evergrande HQ demanding their money it was P2P lending and many other scams.
The other thing is that Evergrande sold mostly through presales so now there are all those paid for but unfinished apartment blocks.
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.
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?
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).
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.
This is a fantasy.
So far we can't see CCP making this mistake - which sort of confirms that Party has a healthy self-preservation instinct. Let's say, they are trying to do everything to avoid collapse of real estate prices because that will hit retirement savings of too many people, and they seem to accept lower rates of economic growth if that will be necessary to achieve that.
Human history has shown us that whomever controls the army usually wins.
Now, in the post-industrial era, we have a third threat. Extinction. And China may actually combine all three.
Money is the force of reason, ignoring it comes at one's own peril regardless of the force one controls: it means going against common sense that established itself through the power of competition, in favour of some arbitrary political theory or just someone's wits. Even if it succeeds for a while, it always reduces overall quality of the system and increases it's vulnerability.
Making payroll is never an issue for a sovereign that controls a central bank that controls their own currency. You're completely missing the point, because you're thinking in terms of money. A country isn't a business, or a household, it doesn't budget in the way you think.
> Money is the force of reason, ignoring it comes at one's own peril regardless of the force one controls:
Money is a floating-value paper proxy for material wealth. When there's a shortage of material prosperity - when people aren't building stuff, that's when you get a problem. Your position has just as many ideological blinders on as the one you think you are making arguments against.
The USSR collapsed because it failed to provide material prosperity. China, by any metric you could measure, is wildly succeeding at providing that material prosperity. That is what the party is focused on, because that's what's going to keep them in power.
You have to have bases of power, who are compensated and secured.
It's less stable, but doable with the right mix of alternatives, to ignore "the people" as one of those bases of power.
Soviet Union has collapsed while having whole lot more economic power and raw output of just about every industry, and was much more up to date technologically, but it deprived people of their basic instinct: to save and invest money and grow rich. Today's Russia allows and encourages that. Moreover, it even allows people say, to blatantly ignore taxes on all levels (i know people who make millions bucks per year in Russia and they don't know what tax number is, receiving and spending money through the banks in the open - and banks even help then when they need to make that money look legit abroad). As long as you don't try to oppose the great Pu or mess with politics overall, the regime has nothing against people enriching themselves - so the support base is rock solid and need for violence to maintain internal order is next to nonexistent.
Russia isn't democratic, but it is capitalist in the sense: you can own capital and government wants you to, and sees people who have capital as by default more well-behaved and loyal than those who don't. The sickest shit Putin may say on TV is shrugged by those people as "Pu just wants to make those peasants happy", and they may be even right.
The Soviet Union pissed half of its economy away into its military, and the other half into its particular brand of waste, inefficiency, and corruption. It had a shortage of housing, basic consumer goods, and appliances - a shortage of material wealth, which became untenable by the time the fourth post-war decade rolled around, and everyone started wondering why the country has 12,000 nuclear warheads, but is still so goddamn poor.
If material wealth weren't the problem, or if Gorbachev didn't decide to stop imprisoning people for complaining about it, it would still be around today.
The world's three meals away from anarchy, if there were serious material shortages in the US today, nobody would give a crap about what monetary policy it follows, or whether or not you can save. King Bread is a ruler you swear fealty to, compared to him, King Dollar is something that comfortable philosophers build elaborate arguments for and temples to.
Your description of Russia seems accurate, ~1995 to ~2010.
However, policies appear to be changing into tighter, more direct state control of oligarchs, in an effort to ensure civil stability.
Additionally, Putin is now 70... which is getting to the age that more laissez faire dictators turn increasingly autocratic in response to any external disturbances of their social control.
At some age and tiredness, it seems like the blunt approach trumps finessing a solution between multiple competing interests.
And... not to put too fine a point on it, but Putin did just survive a coup attempt, which wouldn't have launched if there weren't some support for it among the myriad power brokers in Russia.
They don't have voting power.
They don't have demonstration power.
They don't have access to broadcast their free speech via mass media.
Short of outright rioting, there's little they can do that matters to the Russian government.
Which means than in a trade-off between {what the people want} and {what those with power want}, the people are going to be ignored.
> (and even has no problem with them exporting that wealth abroad)
"...discuss reintroducing some capital controls to help prop up the struggling rouble."
https://www.theguardian.com/business/2023/aug/16/putin-meeti...
Are you aware of what happened to the landlords in China or do you mean the landlords weren't human?
Creating an all-encompassing historical 'rule' like 'money always wins' and then discounting evidence of a blatant counter-example is not generally a method that ends in good outcomes.
See: all major failed political movements based on an ideology that refused to adapt to conditions that did not line up with its dogma.
The party has 98 million members
Folks join not for ideology but for the social standing and future career prospects - you not going to be a senior bureaucrat or military officer if you ain't a member.
Like in 2008, bankers made a killing selling toxic products and socialized all the losses when everything came crashing down.
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.
https://en.m.wikipedia.org/wiki/List_of_banks_acquired_or_ba...
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.
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.
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.
In Dutch, interest is actually called 'rente'.
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.
It's China, the authorities will just say "no." and then jail anyone who asks again.
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.
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
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.
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.
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.
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.
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.
You mean the rule of law that it imposes upon others that they didn't agree on? And they'll bring it up only when it's convenient.
I'll say it again: Big countries will be big countries.
Now that I've answered your question, do you believe the US hasn't had abuses of it's power in the decades it's been at the top? And if not, can you name an instance of it?
Not just a law but a constitution
There is no way in hell I (as a foreigner in China) will win an intellectual property dispute from a Chinese company in China.
Didn't they drop that requirement last year?
Probably because of this. The US is allied to several prosperous Asian countries.
And being prosperous doesn't mean not being dependent.
Japan agreed to the Plaza accords
Other Asian countries probably are going to be careful before signing up for something equivalent.
Please do list all the prosperous Chinese or Russian allies.
I'll wait.
This certainly plays in their interest. The USA's support for global trade and the economic prosperity of countries key in their trade network (like Japan, for example) are similar ventures. I'm not saying China is making countries as prosperous as itself, but it is certainly working to make being a Chinese ally economically attractive.
[1]: https://www.voanews.com/a/china-cancels-23-loans-to-africa-a...
[2]: https://thefinancialexpress.com.bd/views/opinions/chinas-eff...
Those people you tell, in writing, signed by your highest authorities: if your people start dying at the hands of another country, our people will start dying with them.
Talk is cheap.
https://en.wikipedia.org/wiki/Sino-North_Korean_Treaty_of_Fr...
Of course "talk is cheap" is an hyperbole, since there can be a lot of mutually beneficial agreements that don't involve military sacrifice
https://en.wikipedia.org/wiki/2001_Sino-Russian_Treaty_of_Fr...
https://en.wikipedia.org/wiki/Shanghai_Cooperation_Organisat...
China doesn't have friends.
Nota bene, I'm convinced the US is spying. It's just what China is doing in terms of spying and forced industrial transfer makes the US stuff look kiddie play.
I'd say we're still tied, personally. Arizona and mainland China are both getting a TSMC plant.
Why?
The US just brain drains countries.
Given China's rise and size, US Asian hegemonial interests primarily trend towards making any not-China country in the region as economically strong as possible.
Japan's recent Stagflation has plenty of obvious internal causes. Blaming the west for that is some weird cope.
China is an expert at manipulating their currency and internal markets for global advantage. Countries reacting to China's top-down aggressive self interest in a global market is only logical. Other countries engaging in those markets aren't there for charity and nor is China.
I don't think it extends so far since it's the 80's but I can see why one would blame the US there. Around this time Japan was forced to do technology transfers to the US, to have minimum marketshare in japan for US cars and semiconductors, to have unfavorable monetary policy.
That smells equivalent to being a vassal at gunpoint. Of course European countries helped pressuring and it being the cold war japan did not have much developed (or allowed alternatives) for it's export based economy even if it did have an army, more independence and a more varied political landscape.
The USA is not happy about this [2]. Understandably, this affects American companies' business in the country. The USA is happy do take action in defense of its national security and its national industries, but fights back when other countries do the same.
[1]: https://www.neimagazine.com/news/newsfrench-government-wins-....
[2]: https://www.aljazeera.com/news/2023/1/6/whats-behind-the-ene...
A beacon of self determination and lack of foreign and imperial influence?
Oh, wait!
[0] https://en.wikipedia.org/wiki/List_of_Chinese_administrative...
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.
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
Related: Do you think China can catch-up to developed world in fab tech? I do not. They are hopelessly behind.
As for China "catching up":
1. China is indeed far far behind the US-controlled West if the criteria is purely Chinese designed and manufactured semiconductors using purely Chinese designed and manufactured equipment.
2. The extreme nature of the US semiconductor blockade has surprised even me (and I was kinda expecting the worst).
However:
3. China is developing along a path already throtten by Western companies; far easier than developing on the leading edge.
4. The Chinese market (plus Russia, Iran whoever is on the US shit list) is massive. It can sponsor a lot of technological development.
In the end there is no magic in tech.
Whatever company is at the top seemingly untouchable is there because of a "natural monopoly" created by massive fixed cost and little marginal cost. History is full of tech companies that were at one point dominant but no longer is: Digital, Microsoft, Intel, Google ...
The companies that are used as chokeholds today: NVDIA, ASML, TSMC will at one point join that list. In fact using them as chokeholds probably makes it happen faster.
Flattened? It's growing something like 5% per year.
If you believe you are right and the market is wrong, you should short-sell CDS'es and get rich.
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.