Thread by @APearlBird

Now that the meeting in Shanghai is ongoing I wanted to warn of the issues in the Chinese economy.

Do you remember Evergrande?

The company went bust four years ago. It has left a huge portfolio of about 1300 building projects in different stages of completion. Most of them are of questionable quality and completing them makes no sense because there already are tens of millions of vacant apartments in CN.

Real estate was viewed by their population as a safe investment. National and international banks found a growth sector after the Subprime crisis in the US. Evergrande and about a dozen other companies from the sector grew substantially since 2000, fuelled by debt.

The investments by Chinese families (buying an apartment is barely feasible for couples) were seen as a safe haven in their market and many invested in them. Some were bought for the sole purpose of selling the unit at a higher price someday - but that day hasn’t come.

Instead, overproduction has led to a glut of expensive housing projects for which there is neither the trust nor the money in the private sector.
Another factor is often not mentioned:
You can own an apartment but never the land it is built on.

The land is owned by the local government and they can and will evict and destruct houses at will.

Gambling is prohibited in mainland China, but the investments in housing weren’t, even though the population saw the enormous developments standing unfinished. Empty husks.

Evergrande was financed by many national banks and even the international bond market. The unfinished assets are worthless and most of them will never be completed. Those who invested in these empty husks lost their families life savings.

This has led to a crisis of confidence in China. The population has lost the only thing that made sense to invest in and promised to prevent from inflation eating into their equity.

The national banks are under enormous pressure and many have already sought government assistance or have been placed under administration. These acts have further decreased the trust within China in banks, government and the future of the country.

In the past year there has been an increase in complaints by workers who were employed by companies executing state contracts (railway, highway, etc.). Many have not been paid but stayed in a contractual arrangement with their employers because of other benefits.

These could be access to building materials. Fuel. Food. Preferential pricing in company stores.

Now this is all in a state of flux without light appearing at the end of the tunnel.

Overproduction in China has been linked to excessive subsidies (EVs, photovoltaic panels, housing - to name a few).

These subsidies are drying up because they come from the same coffers as the money necessary to bail out banks and finish what insolvent companies built.

Next to the demographic issues in China these are the main reasons for a pessimistic outlook in the country. They are the reasons for vandalism. For disgruntled workers burning down their place of work. The strict measures implemented in 2020 destroyed the social pact.

The population knows that the party will use violence when threatened.
And yet there have been protests and many petition the CPC because they feel they have been mistreated or worse.

Do not expect China to bail out the russians if things go even further south than now

Beware: One party systems tend to declare outside threats when internal cohesion is under pressure.

It is unknown if the black hole Evergrande left (300 Billion USD) is the true extent. Because of the loss of trust and the implementation of new rules regarding developers, the extent may be greater than current estimates. Far greater, if the 'shadow banks' were involved too.

My dear @threadreaderapp

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