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China's Real Estate Bubble Finally Cracking?


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2 hours ago, hasilp89 said:

His thesis has all the ingredients for panic, fear and selling. Hard for me to understand how things actually play out with CCP though.


One side of me wants to believe that fundamental finance & economics play out (lots of leverage, fake demand, overcapacity, loss of confidence -> pain).

The other side wonders if the CCP is able to control it all because it controls everything - have listened to China bears for years - what is the hair that breaks the camels back - is there one?


either way worth understanding potential risks to the businesses i own.

That’s a strange account that came to my attention too. I am not sure what to make of this.


My sense is that the CCP will try a controlled burn, Evergrande equity holders  will be zeroed, some apartment holders will be left holding the bag, some bond holders will take losses etc. I think they like the idea to reduce rampant speculation and this gives them a cover to do so.


I think the CCP controls enough about the banks, economy etc to prevent systemic risk. Panics were very common before there were central banks. The CCP is almost omnipotent in China and has way more influence than the Fed and the government has in the US.

I think they can easily avoid systemic risk.

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This is going to be really interesting to watch. It appears the CCP is taking the same approach with Evergrande as the US took with Lehman Brothers - let it fail. With hindsight i am not sure the US would have done the same thing given how the situation quickly spiralled out of control. 



It appears we will soon be learning how the Chinese political system/economy will deal with its first big internal economic crisis - its made in China version of a real estate bubble. 

The US model was to let a large swath of their population lose everything. Brutal. Also effective (some would say). 

I highly doubt China’s solution will see Chinese citizens taking the biggest hit. My guess is the hit will primarily come from equity investors AND BOND HOLDERS. And i think what they do with bond holders will be one of the keys. Who will the CCP throw under the bus to manage through their property bubble? 


My guess is international investors (once again) are going to get taken to the cleaners (likely already happening). International investors are once again going to learn the hard way what ‘common prosperity’ means for the owners of capital. China’s is, after all, at its core still very much a communist country. It is like a wolf wrapped in sheep's clothing - a communist country pretending to be capitalist (to get investment and technology from abroad) until it no longer serves their needs (that common prosperity thingy again 🙂. Smart buggers. 

Property market meltdown. Education enterprises, gaming, gambling, tech meltdown. All at the same time? How does ‘common prosperity’ play out in a crisis?


Do we see international investment into China drop off a cliff?


We are also going to see how well the CCP can thread the needle and manage this developing crisis. 

Contagion is now at play. China is now a massive economy and what happens there matters to the rest of the world. Get your popcorn out.


Analysis: Investors brace for a great fall in China


Edited by Viking
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18 hours ago, muscleman said:


That would only work if the husband's own salary is able to support the whole family, which is not realistic in most cases today when the property prices are sky high and a single earners salary is not able to support the mortgage.

Remember: The US houses are trading at 4-5x median annual household income and most households are single earners. The Chinese condos are trading at 20-25x median annual household income.


 While China both remains the 'workshop of the world' and continues with its build, there are jobs for young people. Going forward, most would expect both these to taper off, unemployment to rise, and young women to bear the brunt of the lay offs. However the unemployment rate will NOT rise - if those young women are permanently leaving the workforce to raise kids!    


The CPC could easily 'break wings' to make that happen. The resultant pent-up baby boom both supporting the domestic economy for a good 3-4 generations, and diminishing Chinas reliance on ongoing 'western' demand for Chinese goods. Make property in the ghost cities affordable, available, and move industry there - or be disappeared/nationalized with minimal compensation. You live in China, not the west.


Ultimately, it's just a different approach, measured by different metrics. 






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36 minutes ago, John Hjorth said:

Here is another tweet about Evergrande from a Twitter user called Ming Zhao. To me, it reads just ..."juicy".

Thanks for posting the link. State gets paid. State dictates terms to company. No rule of law. No recourse. Just another beautiful day of investing in a communist country. Can’t wait to read how Blackrock etc put lipstick on this pig for its customers back home…

11/ What does the seniority waterfall look like? Who gets paid first? Who gets paid last? 1. the state (Evergrande's bank loans are state-owned assets & must be redeemed before all else) 2. suppliers (mostly in the form of commercial paper redemptions) 3. investors 4. employees
12/ So what can Evergrande do now? 1. Liquidate existing assets (i.e. land) for cash 2. Restructure contract terms to push out maturity 3. Debt to equity swaps 4. Sell more equity 5. Declare bankruptcy 6. Wait for bailout

13/ Who wins & who gets f*cked under each scenario? It's quite simple. The state always wins because it'll be first to get paid and will always be able to force management to make decisions at the expense of every other stakeholder group. Everyone else gets f*cked.
Edited by Viking
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I recall back in April 2017, I attended the AGM of Vestas Wind Systems A/S i Aarhus, Denmark. At that AGM, the Lady of the House attended, too, and we met with @TBW. [He is just such an awesome guy in every aspect!] I recall Tim asked if I've ever looked at this Chineese behemoth of a RE developer, that was writing empty real estate up, up, up! Tim is a long/short guy. He was in self-occilation & mental overdrive. [ :- D] I had forgotten the name of the company, but now I think I remember it! Now I'm in urge to get in contact with Tim to hear if he ever found a way to short this darn thing! [ ; - D]

Edited by John Hjorth
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