The Conservative Cave
Current Events => Economics => Topic started by: Ptarmigan on September 18, 2021, 01:25:19 PM
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China’s Property Problems Go Beyond Evergrande. Real Estate Stocks Take a Beating.
https://www.barrons.com/articles/china-evergrande-property-problems-51631815303
Remember that guy who ran for mayor of New York City by shouting, “The rent is too damn high?” Chinese authorities have taken his lament to heart, setting “reference prices” for secondary apartment sales in half a dozen expensive cities. That signals a problem that goes well beyond the spectacular crackup of overleveraged developer China Evergrande Group .
Beijing’s tinkering with China’s valuable internet platforms may concern global investors more. But housing is China’s perennial challenge as it seeks to balance capitalist dynamism with socialist ideals and a Communist power monopoly.
Real estate construction and investment has been both driver and outlet for the country’s burgeoning wealth, accounting for some 20% of gross domestic product.
Evergrande is China's equivalent to Lehman Brothers.
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China's Evergrande: What to know
https://www.foxbusiness.com/markets/china-evergrande-real-estate-lender-property
One of China's largest lenders, Evergrande Group, is facing billions of debt with the threat of default. The crisis is sending shockwaves through global financial markets, including in the U.S., where the company is being compared to Lehman Brothers, whose implosion in September 2008 sparked the Great Financial Crisis.
FOX Business takes a look at Evergrande's business and its role in the world's financial system.
EVERGRANDE GROUP
Evergrande is one of China's leading lenders for everything from property to autos. The company has 2.3 trillion Chinese yuan in assets, which equates to about $355 billion in USD, according to the lender, which employs 200,000 workers.
By 2022, Evergrande expects to reach 3 trillion yuan in total assets, 1 trillion yuan of annual sales and 150 billion yuan of annual profits and taxes to become "one of the world's top 100 companies."
Evergrande could crash.
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Evergrande could crash.
:popcorn:
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How many ghost cities can you build before the $#!+ hits the fan?
Interesting analysis here:
https://zeihan.com/a-failure-of-leadership-part-iii-the-beginning-of-the-end-of-china/ (https://zeihan.com/a-failure-of-leadership-part-iii-the-beginning-of-the-end-of-china/)
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Never fear. As long as Joe Biden is President, China need not worry about a damned thing.
They have Joe in their pocket and they'll pull him out and play that card when they need to. Easy peasy.
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China’s Problems Are Larger Than Evergrande
https://www.theepochtimes.com/chinas-problems-are-larger-than-evergrande_4017502.html
The potential bankruptcy of Chinese real estate company Evergrande is much more than a “Chinese Lehman.” Lehman Brothers was much more diversified than Evergrande and better capitalized. In fact, the total assets of Evergrande outnumber the entire subprime bubble of the United States.
The problem with Evergrande is that it isn’t an anecdote, but a symptom of a model based on leveraged growth and seeking to inflate gross domestic product (GDP) at any cost, including ghost cities, unused infrastructure, and wild construction. The indebtedness chain model of Evergrande isn’t uncommon in China.
Many Chinese companies follow the “running to stand still” strategy of piling on ever-increasing debt to compensate for poor cash flow generation and weak margins. Many promoters get into massive debt to build a promotion that either isn’t sold or is left with many unsold units, then they finance that debt by adding more credit for new projects using unsaleable or already leveraged assets as collateral.
Evergrande is not like Lehman Brothers. Lehman Brothers is more diversified. This looks to be worse.
The problem with China is that the entire economy is a huge indebted model that needs almost 10 units of debt to generate one unit of GDP, three times more than a decade ago, and this whole catastrophe was already more than evident months ago. With total debt of 300 percent debt to GDP according to the Institute of International Finance, China isn’t the strong economy swimming in cash that it was a couple of decades ago.
The market assumed that, because it’s China, the state was going to hide these risks. Even worse, the Evergrande collapse only shows a dangerous reality in several Chinese sectors: excessive indebtedness without real income or assets to support it.
This episode comes at the worst possible time, after the regime has launched a massive crackdown on large companies. International investors are already concerned about corporate governance and intervention in China, and now the fears of credit contagion make the risk even worse.