Evergrande shares plunge as much as 87% as trading resumes after 17 months

There are famous online videos from newlyweds that purchased a condo from a few years ago, and have been documenting their journey, and they still haven't received the unit. Meanwhile their kid was born already.

2.) Yes, just google "empty kindegardens in China". Also, marriages dropped to the lowest since records began in 1986. https://www.theguardian.com/world/2023/jun/14/marriages-in-c...

3.) Nope. China’s government land sales revenue declined for the 19th consecutive month in July. Land sales fell 10.1% from a year earlier in July, after declining 24.3% the previous month https://www.reuters.com/article/china-economy-landsales/chin...

The Chinese local governments' bonds alone total at about $2 trillion, and any defaults would rock the Asian nation's $60 trillion financial system, according to Bloomberg. https://www.businessinsider.in/stock-market/news/chinas-10-t...

That's not really the issue. I doubt the younger generation can afford it. The problem is where the wealth is going - as in those with the $$$.

> The demand side is mostly people buying second and third units as investments.

No, at least not always. At some point you weren't allowed to buy more than 1 or even use your funds openly this way.

So to wrap up - those with wealth lost or have lost trust with China / the government and are withdrawing at alarming rates, e.g. to overseas. Due to how COVID was handled and many other cases where your wealth could just disappear - people now rather keep their $$$ elsewhere - not back "home".

Long story short: the head of Evergrande was politically connected, helped build China on borrowed money, had no credible plan to ever repay all these loans, one day China decided to stop leveraging and Evergrande had to unwind... except it couldn't because it didn't have enough actual money to repay loans quickly. Too bad their bonds were sold to everyone and their grandmothers in China to try to find yields in the no-interest environment. Now that interest rates are back, nobody want junk Evergrande bonds anyway. Catch-22.

What you are also missing is that sometimes, parties are not allowed to abandon ship. Couples who have bought homes with mortgages but are not moved in for years are not allowed to give up, they are not allowed to stop paying on threat of imprisonment.

The organizations on the countersign are also not allowed to give up on mortgages because the existence of their company is at the will of the government.

There was an uprising where people banded together and just stopped paying their mortgages and basically threatened the local police to mass arrest them, and that's one of the things that spurred the greater bankruptcy, because the government didn't really want to arrest all the people, cause that would indicate they are not in control. And seeming to be in control is what the government will opt for every single time in every single decision they make.

Why can't all 4 of these be right? "A little too insane" defines every bubble in hindsight.

Point to a bubble w/ a collapse and I'll give you a set of statements that are "a little too insane" such that fundamentals don't hold up.

My guess is you're gobsmacked by the idea that the fundamentals don't hold up and are saying "how can anyone be that stupid?". They didn't in 99, nor 08, nor Gamestop, nor now.

Everything can be wrapped under Greed.

[Edit] Full disclosure, I'm no better - I've lost money chasing greed.

Since the state owned all the lands and the local governments as the sole supplier of lands, they became a monopoly in land sale. As with any monopoly especially a unchecked one they pushed to raise prices all the times to gain maximum profit. The regulation and policies of the governments aimed to build more and to keep raising the property price years after years because that's what brought in the money.

It has become unsustainable as people couldn't afford the high price. There're a glut of houses and sales have been slow yet the governments have prohibited the lowering of the price as lower housing price means lower tax revenue. There're some cases when developers lowered the price and got hit with huge fine and jailed.

High price and slow sales mean the developers like Evergrande cannot get rid of the inventory to get the capital back to fund further development. They have already sold the not-yet-built houses for the next phase but have run out of money. Couple years back the central government had forced the banks to put in severe limits on loans to the developers. They turned to shadow banks like investment fund trusts to raise money but those are blowing up just now, defaulting on bond payments. They have no money to finish the projects. They owe huge amount of debts, owe huge amount of unpaid taxes, and owe the unbuilt houses to customers. They should have been bankrupted a long time ago but the governments won't let them.

This is a huge problem for China. Housing development comprises about 25%~30% of GDP; its blowup would cripple the economy. Most ordinary people's wealth are largely tied to the value of their homes; a large drop of the house value hits most people hard, forcing them to cut back on spending, further putting down the economy. The financial institutes like banks, shadow banks, investment funds, etc have lost huge amount of money as developers unable to pay back their loans and people defaulting on their mortgages. The lowering of the property value would force more loans gone underwater. There'll be a string of bankruptcy. The local governments have large revenue shortfall and yet saddled with huge debts, because guess what, they were in the game to invest to build housing. The shortfall forces them to lay off workers, cut back on salaries, cut pensions, and cut back on services. Even the central government has no money. Last year they openly said that beyond some emergency fund there's no money left.

Any option for solutions is a bitter pill and no one has the political will to do it. It's just a downward spiral.

they did. they moved a ton of cash into BTC, houses in Vancouver, or African mining holdings, and GTFO.

Not necessarily, living space per person could increase faster.

> all funded through mortgages

All promised future work is debt by definiton. with real estate being 70% if Chinese wealth, it has to be public debt, whether in the form of mortgages or government debt.

But if I buy a slice of a high rise building, what does the deed say? What does the plat map look like? Do I just own an N% slice of the underlying land? Do I own specifically the portion of the building that is M inches from the top of the foundation to M + Q inches above it, and X inches from the Northwest corner of the structure, etc?

For rentals, it's straightforward, since the owner pre-specifies the dimensions of the unit numbers. But how does one "own" a section of a multi-tenant structure? How does one insure just their unit, if fire and other damage risk is shared?

Who’s on the other side of those mortgages? The Chinese government.

[1]: https://www.spglobal.com/marketintelligence/en/news-insights...

And they have excess debts that their assets no longer cover because the housing market crashed.

Additionally, they just took on obscene debts. The banks did not do the appropriate due diligence (hypothesis is the local governments interfered).

But I know only what rando YouTube videos have told me.

https://www.reuters.com/world/china/unfinished-evergrande-ap...

Practically, just like any other real estate developer, they have tons of unfinished projects and now we don't know the future of them. And of course it's just one of the problems.

Their physically ability to deliver homes is not what's at stake here.

No, they are demolishing whole empty cities to keep the prices up.

https://asia.nikkei.com/Spotlight/The-age-of-Great-China/Con...

https://www.youtube.com/watch?v=8AuWH2GdH1w

1.) as of 2021, There are nearly 800 unfinished Evergrande projects in more than 200 cities across China. https://www.nytimes.com/2021/09/28/business/china-evergrande.... Even if the buildings were unfinished, the buyer still had to keep paying the mortgage!! and if they didn't, and the courts foreclosed the property and sold it, the buyer is liable for the fees and the differences. Most of the time the buyer is hugely underwater since the real estate price in 2023 has crashed 50% - 70% from peak. And now, because your social credit is shot, you no longer can purchase tickets for flight or train, making it even harder to try to find jobs to pay back your debt.

2.) China is known for its tofu dreg buildings. Just google online if you want to see brand new condos with facades blown off, cracked foundation, sand mixture where cement should be, tilted buildings, etc. This is especially true with buildings built in the last few years. And this is especially true for buildings from bankrupt mega developers like evergrande and country garden.

3.) This is a domino that leads to a series of systemic collapse. Country garden, the second largest developer in China, missed bond payments as small as 22 million recently. It had a capitalization of 60B in 2018. Now it has a debt of 200B. Zhongzhi enterprise missed payments recently, being one of the largest trust company. People are reminded of Lehman from these events. https://www.businessinsider.com/china-economy-beijing-lehman.... Doesn't help that export and import just collapsed by double digits in July, exports to US dropped 23% y/y, there's huge youth unemployment of at least 22%, foreign investment dropped 90% in 2023, and the worst flood in the last 50 years just hit China's biggest grain region.

Oh yeah, and because Chinese citizens are outraged by Fukushima release, they are boycotting Japanese seafood, and in general all seafood, which has decimated the entire seafood industry in China overnight, with no traffic to seafood market or restaurants.

4.) Even if the buildings were done, a lot of the buildings are empty and not livable due to shoddy finish, foreclosures, no public amenities working, lack of residents (owners are selling the units at 50% price cuts), etc. Imagine living in a huge 50 story building with only a few residents at night. https://www.architecturaldigest.com/story/see-inside-a-ghost...

The problem is you assume they're legit. Who says they actually completed the projects (houses)? Who says there are no defects and that people can live in them? How do you even come to that conclusion? Just assume in good faith?

It's great they have all this housing, except there's both nobody to live in them (they were investment homes) and there's all this debt tied up in even completing the ones that were ponzied out.

They basically took the US 2008 Mortgage fiancnial crisis and said, WE CAN MAKE IT BIGGER, BY A LOT.

The problem, however, is not the nominal amount but how the company network is inter-connected with other companies (either abroad or locally). This amount, albeit not colossal (by China relative size) could trigger effects in other companies that will lead to their failure. This will go on until it becomes a full international crisis.

Of course, it could mean that just some rich intercontinental people have lost money on some Chinese developer bond. The thing is, no one knows. Not the leaders of the CCP nor the US do have insights whether this can go somewhere to just stop here.

At the start of the Global Financial Crisis, the Chinese government stimulated the domestic housing market, which was the start of this bubble, but the demand for steel was enough to ensure that Australia suffered no economic downturn at all.

All that's about to come crashing down.

The treatment of stakeholders have also been different inside and outside of China. The assumption based on the experience so far is that inevitably overseas investors, such as US based entities, will lose out more. Chinese firms have been raising money in overseas markets and has been exporting risk in this way, the issue is how China's government will handle this against the opaque corporate structure behind these financial instruments sold overseas.

Making people pay could collapse the entire economy.

[1] https://www.reuters.com/world/china/chinas-mortgage-boycott-...

I kind of think this may be a slightly better model in terms of homebuyer protection... (May not sound good for the developer though)

[0] https://www.youtube.com/watch?v=c-n6RN8a2Zo

With Evergrande, I imagine some people believe it might be important enough for China that it may someday get a bailout. I don't believe it.