Why the Chinese real estate meltdown is significant - thread
#Evergrande
Much like India, Chinese government controls the land and licensing for real estate development.
Also much like India, everyone in China wants to own a house. This leads to demand which leads to appreciation, which leads to more people investing in real estate. It’s a vicious circle.
To fuel their expenses, the CCP has created a structure where almost 65% of cost in a real estate project is land + licenses. Bureaucrats thinking they’re better businessmen than businessmen isn’t unique to India.
So lending to both the developer as well as buyers is from the government banks to pay the government. While this bill run was strong, prices kept going up and everyone was happy. Then Trump happened. Then Covid.
This string of bad news came when China has been giving away sun-prime loans to Sri Lanka and Pakistan like economies to build what no one will use. They’re spending on their military to build a hegemony. They’re building islands in the South China Sea.
Now the party is over and the 1st Domino to fall is the developers. That’ll be followed by banks. As pressure mounts, this’ll impact interest rates as well as put pressure on their artificially pumped currency.
That’s the last domino. It’ll impact the low tech manufacturing in China adversely. The Chinese are in for a rough landing. Let’s hope that unlike Covid this doesn’t get exported everywhere

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