Very recommendable! Will another, huge housing bubble burst and impact the world? The specter is real!
As I speculated here before, Evergrande might turn out to be the grand finale of the self anointed usurper, imperialist, and hegemon, the communist dictator for life Xi Jinping. Evergrande: Too large to fail, too large to survive!
"... China’s property developers account for an astounding 20% of the entire world’s consumption of steel and copper, according to estimates by British investment bank Liberum.
Windows and other fittings in Chinese buildings use a further 9% of global aluminium, 8% of nickel and 5% of zinc. ...
This estimate is in line with a 2019 Reserve Bank of Australia paper showing that real estate and associated services are responsible for around a fifth of China’s GDP growth. ...
President Xi Jinping has frequently declared that ‘houses are built to be inhabited, not for speculation’. The China Daily report says the reiteration of this edict demonstrates ‘the Chinese leadership’s resolve not to make property a short-term economic stimulus tool but to ensure it functions as a long-term ally of high-quality development’. ...
Although Evergrande’s liabilities are vast—the cited number is in excess of US$300 billion—the Chinese authorities likely have the ability to contain a financial crisis by ordering state banks to take on debts and construction companies to complete unfinished projects while guaranteeing retail investors and the deposits of homebuyers. Bond holders would be expected to take losses. ...
But it may prove a lot more difficult to stop the housing market from falling. The command-and-control instincts of China’s authorities are ill-suited to the management of markets. ...
Developers worried about the impact of Evergrande’s 1.5 million unfinished apartments on property market confidence are attempting to offload their inventory, but local government authorities are banning them from doing so at discounted prices, with references to ‘malicious price cutting’. Despite discounts, property sales were down 20% in August and steeper falls are expected in September. ...
housing accounts for 78% of overall Chinese assets, compared with 35% in the United States. ...
As the forest of cranes on the skyline of any Chinese city attests, property development is a large component of China’s overall economic growth.
The real-estate and construction sectors account for an astonishing 29% of China’s GDP ...This estimate is in line with a 2019 Reserve Bank of Australia paper showing that real estate and associated services are responsible for around a fifth of China’s GDP growth. ...
China’s authorities have long used their ability to manipulate the property market as a principal lever of economic policy. When there are concerns the economy is overheating, restrictions are imposed on the number of properties a person can own and the amount they’re allowed to borrow.
When the government worries that the economy is slowing, loan-to-valuation limits are eased, mortgage discounts are offered, banks are instructed to lift lending and developers are given fresh tax incentives.
But over the past year, the Chinese property market has become a target in a set of policies unleashed under the overall goal of ‘common prosperity’.
An influential report in the Chinese financial daily Caixin by a prominent economist and deputy director of Yuekai Securities Research Institute, Luo Zhiheng, says there have been profound shifts in China’s development philosophy since the plenary session of the Chinese Communist Party’s central committee last October, which launched the latest five-year plan.
‘These include the shift from growth rate to security; from efficiency to fairness; from early prosperity for some to common prosperity; from capital to labour; and from real estate and finance to science, technology and manufacturing,’ he said. ...President Xi Jinping has frequently declared that ‘houses are built to be inhabited, not for speculation’. The China Daily report says the reiteration of this edict demonstrates ‘the Chinese leadership’s resolve not to make property a short-term economic stimulus tool but to ensure it functions as a long-term ally of high-quality development’. ...
But the question is whether the authorities can control what they have unleashed. There has been much discussion in both global and Chinese media about whether Evergrande represents a ‘Lehman moment’, referring to the uncontrolled contagion after US authorities declined to save the investment bank from collapse in 2008, precipitating the global financial crisis.
Evergrande’s obscure accounting practice means no one is certain of the true size of its liabilities, or of the exposure of the non-bank financial institutions and the millions of retail investors they represent.
But it may prove a lot more difficult to stop the housing market from falling. The command-and-control instincts of China’s authorities are ill-suited to the management of markets. ...
Developers worried about the impact of Evergrande’s 1.5 million unfinished apartments on property market confidence are attempting to offload their inventory, but local government authorities are banning them from doing so at discounted prices, with references to ‘malicious price cutting’. Despite discounts, property sales were down 20% in August and steeper falls are expected in September. ...
housing accounts for 78% of overall Chinese assets, compared with 35% in the United States. ...
China has a very high home-ownership rate of around 90%, and owners, particularly in the big cities, have enjoyed huge price increases. Since 2002, prices in the major cities have risen six-fold, or about double the increase of prices in Sydney
The sector carries high debts, accounting for 28% of all bank lending. The household leverage ratio (debt to income) in China doubled to 60% in just four years to 2018 and has continued rising.
A sharp fall in house prices in China would have far-reaching social, economic and political impacts. ..."
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