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Chinese property giant Evergrande under 'tremendous pressure'

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Beginning of the end for companies that grew and thrived on cheap money.

1 ( +2 / -1 )

This seems like the three red lines actually working as intended, preventing real estate firms from borrowing into [further] oblivion.

I don't have much sympathy for companies in general, but especially those that went under by overborrowing, especially when those funds are wasted.

2 ( +3 / -1 )

The top echalons of the CCP are the smartest, most forward looking capitalists in the world. Apartments and condos are for people to live in, not for capitalists to speculate with.

Marx's basic analysis can't even be overcome by the smartest capitalists but the CCP will make the 'good times' (relatively speaking) last longer than Western Europe, North America and Japan were able to manage.

-4 ( +1 / -5 )

The company is massively over leveraged and should collapse under the weight of its unsustainable debts but it is “too big to fail” the CCP/Chinese government can not allow it to fail as the economic fallout and contagion throughout the economy would be too damaging to its grip on power. There are thousands of “ghost castles” throughout China, the problems in the property development sector are not limited just to one company and the system of local government/land ownership is a major cause of the problem which the CCP dare not acknowledge.

4 ( +4 / -0 )

The metrics on good investment are the same globally. A lazy belief that the Chinese state will simply prop up any large company, so you can ignore endless red flags on excessive debt, is a sign of poor judgement or arrogant greed.

Washington may condemn every Chinese company as a puppet of the state for their own political reasons, but Beijing has its own agenda. If it wants to reduce the lemming-like approach to Capitalism that some of its citizens have adopted, it will need to allow some companies to fail and some investors will lose their shirts. It will manage this as best it can, and Western investors are likely to be amongst the fall guys.

No matter how big the trough, investors should still do their homework before plunging their snout in it. If due diligence is not possible (and in China it often is not), be aware that you are not investing, but gambling. There is a difference.

2 ( +2 / -0 )

Beginning of the end for companies that grew and thrived on cheap money.

This is your standard real estate bubble. For a few years the Chinese government was pumping a ton of cheap money into the system to keep up employment.

I don't have much sympathy for companies in general, but especially those that went under by overborrowing, especially when those funds are wasted.

And ofte tyme swich cursynge wrongfully retorneth agayn to hym that curseth, as a bryd that retorneth agayn to his owene nest. - Geoffrey Chaucer in The Parson's Tale, 1390.

In this context, the kung pao chickens are coming home to roost.

but the CCP will make the 'good times' (relatively speaking) last longer than Western Europe, North America and Japan were able to manage.

The CPC has enough money to bail out Evergrande, but we can argue that not allowing Evergrande to become insolvent and into liquidation will cause further troubles. If you only bail out Evergrande, then everyone else will expect a capital injection; and by the time things fall apart, you may not have the funds to deal with it.

The company is massively over leveraged and should collapse under the weight of its unsustainable debts but it is “too big to fail” the CCP/Chinese government can not allow it to fail as the economic fallout and contagion throughout the economy would be too damaging to its grip on power. 

These news grab the headlines since people take it as a sign that China is doomed. In fact, it will actually show the opposite; that the government sees a problem and deals with it.

There are thousands of “ghost castles” throughout China, the problems in the property development sector are not limited just to one company 

Were it just one company, then you'd write out a check and solve the problem. The issue here, as you've pointed out, is that there are other companies that have overleveraged themselves so there is a need to punish and make an example. Jack Ma and Alibaba would be the example in the crackdown on Big Tech. There will be at some point a conflict of interest.

Beijing has its own agenda. If it wants to reduce the lemming-like approach to Capitalism that some of its citizens have adopted, it will need to allow some companies to fail and some investors will lose their shirts. 

Chinese real estate is dropping drastically, but it is driven by the Chinese government. Real estate traditionally is used as a giant reservoir for money. The CPC hopes to crash the real estate speculation and divert money to small businesses for lending and investing.  They seem to be working on housing affordability for the masses, in contrast to, say, the housing crisis in California.

The CPC is about control. If Evergrande goes under with no lifeline or no new lease offered, it will be by design. There will inevitably be incorrect assessments of the party falling apart and flawed comparisons made with the global financial crisis/ Lehman Shock.

-2 ( +0 / -2 )

They seem to be working on housing affordability for the masses, in contrast to, say, the housing crisis in California.

When you throw out glib statements like that realize that there is no private land ownership in China as there is in California and pretty much every nation with an elected representative government. In China, all urban land is owned by the central government in Beijing and all agricultural land is owned by cooperatives. One may "won" a long term lease on a flat in a tall building in some big Chinese city but you never own your home and land as one does in California for example. Those facts matter because while in China the government owns the land and can do as it wishes with it, in other places people who own land can lean on their elected representatives to stop legislation, such as bills proposed by a California state senator to allow Chinese style high rise housing along "transportation corridors" from being passed. Those homeowners don't give a rip about inexpensive housing. They want to keep the value of their homes high so they can make a lot of money when they sell. Details like this matter. The housing markets in a place like China is fundamentally different than that of a democracy where land is in private hands.

3 ( +3 / -0 )

A detail other posters on this thread have missed is that many of these unoccupied housing units could be sold if the price was reduced. A few builders have tried to do this but they have been met with a buzzsaw of opposition from those who bought into the projects at the original higher prices. There have been protests, even riots at developments when developers announced price reductions. The reason is that these price reductions immediately reduce the value of existing units and their owners, if having a decades long lease can be called "ownership", found themselves underwater on their loans. This is a tightrope the CCP is going to have to walk as they try to liquidate the stock of unoccupied housing units and part of the reason why they remain unsold. The threat of social unrest has so far overridden the threat of a financial collapse.

1 ( +1 / -0 )

@Desert Tortoise In China, all urban land is owned by the central government in Beijing and all agricultural land is owned by cooperatives. One may "won" a long term lease on a flat in a tall building in some big Chinese city but you never own your home and land as one does in California for example. Partially true, in California you can own your own home but you NEVER OUTRIGHT own the land your home sits on!!! Just to make that clear and that is anywhere in the US!!

-1 ( +0 / -1 )

California you can own your own home but you NEVER OUTRIGHT own the land your home sits on!!! Just to make that clear and that is anywhere in the US!!

What on Earth are you talking about? My home and the land it sits on is paid for and I have clear title to it.

1 ( +1 / -0 )

When you throw out glib statements like that realize that there is no private land ownership in China as there is in California and pretty much every nation with an elected representative government. In China, 

Your point is well made. Governor Newsome does not have the same arsenal of policies at his disposal. My point is the authoritarian regime has an array of resources available for controlling the market and is actually doing something about it. They are completely behind this crash.

in California you can own your own home but you NEVER OUTRIGHT own the land your home sits on!!! Just to make that clear and that is anywhere in the US!!

Are you trying to be philosophical? Yes, we come empty handed into this world and leave empty handed.

What on Earth are you talking about? My home and the land it sits on is paid for and I have clear title to it.

If I may, I believe he means we never completely own our land in California or in the U.S. We own rights to the land, and the state always retains the right of eminent domain.

0 ( +0 / -0 )

We own rights to the land, and the state always retains the right of eminent domain.

In California taking land through eminent domain is restricted in that the land may only be used for a public use, the local governing body must approve a resolution of necessity to commence the eminent domain process and part of that process includes a court hearing or hearings. In order to adopt a resolution of necessity, the government agency must find (1) that the project for which the property is to be acquired is necessary; (2) that the property is necessary for the public project; (3) that the project is located in such a manner as to offer the greatest public benefit with the least private detriment; and (4) that an offer to purchase the property has been made. A court makes the final decision on the legality of the eminent domain and the final price paid. It is not arbitrary. Unlike some states in California your land cannot be taken from you and given to another private owner. The laws changed in 2018 in the aftermath of the dissolution of the old Redevelopment Agencies. Eminent domain became much harder to use.

0 ( +0 / -0 )

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