Financial Times - More than half of the top Chinese real estate developers are already in default, monster Country Garden has missed payments/still in grace period but is well on the way to default

Size of box indicates share of sales, pink in default, blue not in default
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Sales at surviving private developers have collapsed, such as Country Garden, down 44% YOY, while their ability to raise capital has evaporated, such as Country Garden's stock down 70% and their bonds trading 5 cents on the dollar.  Meanwhile developers have a huge amount of construction that was fully paid for by customers years ago to complete with a fraction of their former income and no credit, and in most cases that ain't going to happen.  The former deputy head of their economic and population statistics bureau recently estimated China already has enough excess housing for more than double their population, while the government was just forced to admit that the population has begun shrinking, the first step in a downward spiral that demographers say will slash their labor pool over the next decade and may halve their population this century, very obviously creating conditions for long term excess housing inventory.

The ratio of "under construction" to completed is a joke and the money is gone:
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China economy thinktank MacroPolo  (based in Chicago, organized by Bush administration SecTreas Henry Paulson) takes a stab at estimating the effects as the crisis spreads to local government bonds called LGFV's (LGFV's are companies organized and backed by local Chinese governments to issue bonds to finance real estate and infrastructure, they are a huge part of their economy):

We believe the property sector crisis, which has largely peaked, is just a preview of the main event, which will see around 40% of local government financing vehicles (LGFVs) default on their debt. Defaults of this magnitude will affect regional banks that are most exposed to LGFV lending. We estimate total loss for LGFV creditors (including financial institutions such as banks and LGFV supplier/contractors) to be in the neighborhood of $5 trillion, or ~30% of China's GDP.

This will likely be a slow-burn crisis with volatile peaks and troughs, playing out in two phases over roughly three years:

      Phase 1 (mid-2023 to mid-2024): the main feature of this phase will be property developer defaults.

      Phase 2 (mid-2024 through 2025): the main feature of this phase will be LGFV defaults and regional bank insolvencies.

The peak of Phase 1 has likely passed, and we would expect the majority of private developers to default and restructure their debt in coming quarters. In the meantime, land sales will likely continue to fall by more than 10% through 2024.

Declining land sales means dwindling fiscal coffers for local governments, which will force their hand in allowing LGFVs to default around mid-2024 or earlier. Of the estimated total $12 trillion in LGFV debt, at least 40% will not be paid back. Those defaults will primarily come from two categories of LGFVs we call "hybrids" and "garden variety" which won't receive bailouts while "safe" LGFVs will likely get bailouts (see Figure 1).  

Consequently, regional bank insolvencies will start to emerge either in synchronicity with the LGFV defaults or shortly thereafter, because regional banks' lending to LGFVs account for nearly one-third of their total assets. We expect at least 30% of regional banks will be either acquired by bigger banks or go bankrupt (refer to our "Debt Hangover" index to see different regions' exposure to default risk)....

As with any debt crisis, the costs will have to be somehow socialized. The fact that the central government is only willing to shoulder a small portion of the cost, that means the private sector and households will ultimately bear the brunt of the cost.

According to our estimate, the private sector has ~$2 trillion exposure (mostly in the form of account receivables) to risky LGFVs. That could mean ~$1.6 trillion loss for the private sector, assuming a haircut of 80% on LGFV debt repayment.

Chinese households, on the other hand, will see both direct and indirect impacts. For wealthier households, they will likely suffer financial loss from having invested in LGFV debt products, such as trust lending. For average households, they will likely experience indirect costs such as cuts to spending on entitlements and public services mainly funded by local governments and higher taxes to raise revenue.

The impact on the private sector and households, the main drivers of growth, means that the Chinese economy will remain in the doldrums for quite some time. At a macro level, a Chinese economy that will grow significantly below its potential for many years means that the gap between the US and Chinese economies is unlikely to narrow much for the remainder of this decade....

Credit to reliable Chinese policy/economy Youtuber China Update

Pesky debt.  Let’s jump off with WW3.

Neat.  Are some of those the ones buying real estate in the US?  

It's ok, they'll just develop their land in America.

It never ceases to amaze me how broke governments always manage to afford a war.

Good.

Fuck china.

Except it's going to fuck us when they move on Taiwan to get that sweet sweet semiconductor manufacturing...

That's flight from the Yuan.  Our commercial real estate market is collapsing and the residential market will go too.

Anything inflated by the infusions of monetary heroin (TARP followed by successive QE) will deflate.  This includes bonds, stocks and real property and with them, people's 401(K)s.  

On the bright side of the currency wars the dollar will be the last man standing; but that's like calling it the best horse in the glue factory.

If its gonna blow, I hope its biblical.

This world needs a reset.

True, but I like my comfy roof and full tummy.

So their make-work plans to build massive ghost cities for no one aren’t working out long-term?

So Peter Zehen's latest China will collapse in one year prediction will come true?

Carol Roth noted that chinese banks have been selling off us bonds and keeping gold.  They know what's coming.

It's probably both of those things, but the reset will likely be problematic for about seven years or so.

Every single China company is state owned/managed it's not like it matters if they have cash flow issues if China is still selling cheap shit to everyone in the world.

And thats precisely why it needs a reset.

Easy times, weak men, etc etc etc

Gutted ghost cities aren’t going to finish themselves.

the fallacy of central planning.  Rubber stamped by rubber stamping beaureaucrats because the big guy says so...

Haven’t these doom China YouTube videos been going on for years?

I guess eventually it’ll be right.

Commies are bad at capitalism.   Shocking.   I'm sure that more speeches and regulations will fix that.

PSSHT< only costs some ink and paper to wage war.

War is on the menu.  CCP has no other choice.

Yes.  They have to cover up property value collapse, monetary collapse and demographic collapse all of which will occur in the next few years.  They would view the loss of half of their population as a blessing, especially those over 40. Those are the ones who will get screwed over the most when the real estate market collapses, the ones most needy when their life's savings evaporate and the group most likely to cause trouble for Xi.

Vanke rescue - WSJ     Vanke rescue - SCMP

On Monday Shenzhen Metro (city of Shenzhen's commuter rail service) was forced to buy $1.4 billion in properties and pledged to buy bonds at a later date from China's second largest real estate developer Vanke, whose largest investor is Shenzhen Metro, after an abrupt tumble in Vanke stock and bond value raised concerns that a liquidity crisis could cause a debt default.  

Vanke was recently considered among the safest of developers, suffering only a 10% decline in sales.  Investors and home buyers assumed Vanke to be fully backed by the government, since Shenzhen Metro couldn't afford to let it go bankrupt, the city of Shenzhen couldn't afford for their commuter rail to go bankrupt, and Beijing can't afford for the city of Shenzhen to go bankrupt.  But Evergrande and Country Garden defaults plus a torrent of bad economic news spooked investors and bonds tumbled, forcing Shenzhen Metro to turn on the public cash hose to rescue them, and the city of Shenzhen also pledged to buy Vanke bonds.  Proof that Vanke is indeed too big to fail lifted Vanke bonds out of danger, but obviously the losses are now being socialized and Shenzhen will have to figure out how to pay for it.

Vanke is really, really big, representing almost 20% of the "not in default" developers, who are apparently shakier than advertised.  I imagine Vanke could rapidly suck Shenzhen dry if they experience additional distress:
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Shenzhen Metro fought Evergrande tooth and nail for a controlling stake in Vanke in 2017.  The stock has fallen from it's early 2018 peak about 80%.

Why do you think we are building fabs like mad here stateside?  China moves on Taiwan, all the fabs there will get destroyed.

It’s going to be ugly if/when the house of cards collapses.

Those investments are by wealthy Chinese who realized their internal real estate growth was unsustainable, and they wanted to stash wealth overseas and out of reach.



Even if they manage to defuse the debt bomb, it will have a massive long term impact on China's long term growth and strategy.

China has long had two growth engines - internal construction / infrastructure development, and exports.

Even if China manages to avoid the RE bubble fully popping, that growth engine is gone. Even in the best case scenario, I can't envision the rapid construction boom resuming.

China's economy has to carry on down a cylinder and without it's top gear, the economic miracle is over.

Exports look fucked too, they've persistently declined over the past year with the pace accelerating into "oh shit" territory.  

China exports continue slump - AFP 11/7/23
BEIJING: China's exports fell at a faster pace than predicted in October, data showed on Tuesday, as the world's second-largest economy is buffeted by faltering global demand and a sluggish domestic recovery.

Beijing has sought to boost business activity in a country grappling with a major property crisis and weaker consumption since officials abolished their strict zero-Covid policy at the end of last year.

Exports long a key driver of the growth sank 6.4 percent year on year last month, according to the General Administration of Customs.

The reading was much worse than the 3.5-percent drop forecast in a Bloomberg survey of economists and slightly heavier than September.

Apart from a brief rebound in March and April, exports have been in constant decline since last October.

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The Chinese governing elite are publicly floating the idea that real estate values might crash through the floor, unless there's massive government intervention

Former Chongqing Mayor urges measures against 30-50% loss hard landing in public forum - Caixin 11/8/23

China should take steps to avoid a hard landing for the distressed property market, such as the government building affordable housing and increasing people's incomes, former Chongqing Mayor Huang Qifan said Monday in a forum.

He argued that China needs to avoid a 30-50% drop in home prices, land auction prices and home sales - defined as a hard landing - as the sector is undergoing a deep structural adjustment. He is currently executive academic vice president of the China Institute for Innovation & Development Strategy...

(this guy wasn't mayor Joe Jerkoff of Poughkeepsie, Chongqing is the world's 10th largest city, 22 million core residents, 32 million including suburbs, and he's vice-chair of the national legislature's economic committee)

I still see the author of the discredited dreck below being touted as a "expert on China".

Published in 2001



I wonder if books published in China about "The Coming Collapse of America" are big sellers, too?

No problem.
They'll print money and devalue their dollar like they always do.

And lives, at least some human lives. Might be a few, might be a lot but you got to get someone to march into the meat grinder for their country, or someone else's country or for the deranged narcissism of some politician.

The Chinese Communist Party has been dealing with the stresses and strains poorly. They have been purging everyone who isn't a yes man in the inner party and consistentely doing the most tyrannical things they can short of mass murdering their own citizens and I suspect they might start doing that any day now. Communists tend to view that as the default solution to all problems.

The only question is how far will they spread the madness when they decide to completely jump off the cliffs? As much as people here prattle on about their enormous military. Its simply not capable of power projection like the US military is and as I keep saying. Young Chinese people don't really have much incentive to die or kill for their country.

Patriotism is a very curious subject there. There's a cartoon called Year Hare Affair that is done by a guy who is a very hardcore Chinese patriot. But in his work he makes it clear that though he loves his masters. He knows that they might toss him in a woodchipper at any time for any reason.