I am somewhat concerned about the global implications of this. Evergrande is a symptom of a deeper malaise in the Chinese real estate market.
this post was submitted on 03 Feb 2024
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is a symptom of a deeper malaise in the Chinese real estate market.
Its even worse than that because retail investors in China use real estate as their primary investment vehicle. Where as someone in the USA might put money in a 401k for retirement or a brokerage account for investing, those don't exist (in the reliable way) in China. So many regular people's nest egg is tied up in real estate. So this isn't just the real estate market getting wiped out, its millions of working class people's life savings just evaporated.
Goddamn. Thanks for the perspective. This is much more horrible than I thought. It sounds like vulnerable working class people are going to be hurt the worst.
Not just a China thing. Canada is absolutely fucked with the government floundering to try and keep house prices from falling
Correct me if I'm wrong. I know that Canadian home prices are bonkers, especially in large cities like Vancouver or anywhere in the GTA (are the Quebecois also having this trouble?). However, the problem with Evergrande isn't just failure of this company reduces home prices (which is where lots of Canadian savings resides), but Evergrande had taken deposits for tens of thousands of homes it never built or never completed.
So while the value/sale price of a home in Canada may be falling. At the end of the day it still does have value monetarily, and still serves a vital function of housing a family.
China's situation with Evergrande means the money paid for the house by the owner simply evaporated with no possibility of a refund and the house doesn't exist because it was never built (or never completed). So to me the China situation looks significantly more dire.
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How did it get so bad? Is there a tl;Dr anywhere that explains it fully?
This is from Economics Explained two years ago. It basically explains the whole thing, but it isn't really a TLDR.
https://www.youtube.com/watch?v=lbH_8Nj51HU
If that's too long, Peter Zeihan recently gave a fair summary in a six-minute video.
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I think it’s something like: CCP controls what investments citizens make. CCP wants to expand infrastructure and build up a lot of properties. The company gets overfunded. CCP also implements one child policy for like, idk four decades. Not enough people to live in all the properties they built that never relied on market demand.
It's a ponzi sceme with extra steps
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Does it hurt anyone other than investors? Because I could not possibly care less about investors.
That's the problem with investors, if they're not making more money than last year they find a way to fuck the rest of us. Either they pressure companies to lay off workers, they pressure the government to cut taxes, lower pesky labour and environmental regulations, or just handover cash in the form of a subsidy or bailout.
Either way they get our money somehow and enshittify our lives. If there's no hell we'll need to invent a special kind of justice for these people.
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Probably won't hurt the investors, they'll get paid. But all the individual contractors who worked for the company are very unlikely to actually see payment.
The company owes $300B on $245B of assets. Unsecured creditors are among the last on the list to be paid back, and at least some of those are contractors who did work for the company and haven't been paid yet.
Hurts the customers, like lower-middle class people that put their life savings down to buy a home and never got one.
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The chickens are finally coming home to roost with the decades of bullshit in commercial real estate worldwide without proper regulation. This isn't unexpected to anyone with half a brain looking at the industry, which means it obviously completely blindsides major institutional investors who never even consider anything more than quarterly numbers in a vacuum. The pandemic exposed the systemic issues so quickly they couldn't just brush it under a rug with misinformation.
I'm not saying it's ideal or healthy.
But I don't see how the west would have an upcoming issue with real estate.
People are still willing to pay increasingly large amounts of money for real estate and when locals can't afford it they just bring in immigrants.
I'd be interested to know how the real estate valuation in the west is going to decrease.
I have a feeling that "too big to fail" will continue to be the mantra in the west for bailing these institutions out.
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The thing with debt is that every time someone (or something) that owes a world-changing amount of it suddenly goes kaput, it becomes pretty clear how much of the debt system is made up.
If Evergrande owes banks, they'll just write off the debts and pretend it never existed. If they owed companies, they'll recoup "lost" money from assets and loans from someone else.
Most of the debt system is arbitrary and totally nonexistent. This wont be the collapse of the chinese economy like ""china waters"" claimed it would be; for a capitalist country masquerading as a classless economic system they're doing capitalism a lot better than most of the world right now.
Until it gets down to paying small businesses and individual contractors, then all of a sudden the money is all gone and I don't even recognize you, señor.
and will hurt investors
breaks out world’s tiniest violin
Investors can go suck it, I’m in the corner of the working class.
Even here the system will be rigged in favor of big investors vs small investors vs people who bought an asset and will get squat. Because working class who gave them money upfront to purchase an appt or house will be the last one in the collectors queue.
But your response is accurate to the "claim" that investors will be hurt. Media is so messed up that they don't even mention the customers that will get the worse impact than investors.
I don't think you quite understand that in this case, it's millions upon millions of working and middle class people who put most of their life's savings into this.
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Oh boohoo, did someone who enthusiasticly supports capitalism play and loose? Good, welcome to the extreme shittiness of a global free market.
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Will this affect pensions funds? Do they typically use these types of investments?
Probably not very much.
- Unless I’m mistaken this is a Chinese company trading on the Chinese market. Unless someone was specifically looking to be in the Chinese real estate market (which was very hot about a decade ago iirc), they wouldn’t have a lot of exposure. I think the Chinese market has been in the shitter recently, so I’m not sure who’s holding them right now
- Retirement funds (pension funds and 401k target date funds, which is where most of the money is these days I believe) skew very conservatively. They spread their money across markets (so like 5% tech, 8% utilities, 7% municipal bonds, whatever). They might have a chunk in a bucket of “foreign” markets, but even those would be spread across multiple industries. I’d be surprised if any of those funds had more than a fraction of a percent in a single company like this.
- Target date funds get their name from the fact that they’re investing with the expectation that you’ll retire at 65, and the closer that date gets, the more conservative the investments become. People who are retiring soon will have even less exposure to this, and people who are retiring in 20 years will never know this happened.
The real question is whether there’s going to be a ripple effect but it’s not looking like that yet.
It trades on Hong Kong Stock Ex so not a traditional Chinese market, but technically a Chinese one nonetheless. Honestly considering how many tech stocks are traded in retirement funds today, Evergrande probably once seemed like a relatively conservative investment.
Rule of thumb is about 1/3 go to foreign investment for a typical retirement account in the US. But you're right, it should be a very small part of the average portfolio.
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Finally it's only been, what, two and a half years since they went bankrupt?
This is the best summary I could come up with:
But there are still concerns about how Evergrande's fallout will affect the broader market, since the property sector contributes to about one-quarter of China's GDP.
The court has appointed Alvarez and Marsal as liquidator to manage the company, Evergrande said in a filing to the Hong Kong Stock Exchange.
"Onshore stakeholders are busy working to ensure home purchasers will eventually receive the homes they have paid for one way or another, but retail 'mom and pop' investors in the company's offshore securities will be facing even further uncertainty and delay which would likely continue for years," Daniel Margulies, a partner at Dechert, a law firm that specializes in restructuring in Asia, told BI.
In July, Evergrande cited an analysis by Deloitte that estimated a recovery rate of 3.4% on its debt if the company is liquidated, per Reuters.
Debtwire data showed 32 developers in China managed to complete 42 restructuring processes covering 104 tranches of offshore bonds worth $33.1 billion from July 2021 — around the time the current property crisis started — to the end of October 2023.
"Evergrande's liquidation is a sign that China is willing to go to extreme ends to quell the property bubble," Andrew Collier, a managing director at Orient Capital Research, told Reuters.
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Won't someone please think of the investors!
They should start a couple utopian city experiments in those ghost suburbs they built way outside cities. Offer housing and a vision and put some academics in charge so we can learn something.
The problem is that those ghost cities aren't actual cities. The housing is largely worthless and uninhabitable, crumbling before it's even finished, often only "finished" to look that way from afar. You can't actually do anything with it other than tear it down.
It looks to me like there are a fair amount of finished homes with fine construction that are vacant due to this whole thing. Many weren’t completed but many were.
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Think of how U.S. conservatives are disgusted by any idea of a progressive experiment. That is how the conservative Chinese gov't would respond as well.
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