By feng67 @ Adobe Stock
You’ve read about China’s “ghost cities” in the past. They’re overbuilt cities with no one home. Built to boost China’s GDP and to feed demand for real estate investment opportunities in the country’s mismanaged markets, these cities are the epitome of the overcapacity plaguing China. Why, then, should America entangle itself with a major military complex looking to fight its way out of the corner? Allow the Chinese to suffer the consequences of their own mismanagement. On The Wall Street Journal podcast “The Journal,” Rebecca Feng discusses the problems in the Chinese property market with Kate Linebaugh, Gillem Tulloch, and Parker Quillen. Here’s part of the transcript of that podcast that discusses the Chinese government’s creation and destruction of a real estate investment boom:
Rebecca Feng: So after 2016, after the government stepped in, I think the investors and the developers and home buyers saw it as almost like their conviction being reaffirmed, like the government will not let the market fall. So it was after 2016, 2017 when the bubble really took off. If you look at the debt levels of certain developers, 2017 was a moment when I think people realized, “Oh, okay. The property sector was too big to fail.”
Kate Linebaugh: By 2019, Chinese people had almost 80% of their wealth tied up in residential property, but the tide was about to turn. China’s leader, Xi Jinping had repeatedly said that homes are for living in, not for speculation.
Xi Jinping : (foreign language).
Kate Linebaugh: And on the first day of 2021, the government imposed a policy for developers known as the Three Red Lines.
Rebecca Feng: So with the new Three Red Lines policy, a lot of developers, they could not borrow anymore. So effectively, cut one of the lifelines of these property developers. And as Gillem and Nigel said in their report, these developers need to depend on borrowings to survive.
Kate Linebaugh: After this, banks and investors began to slow their lending and within months, Evergrande, China’s biggest property developer was unable to pay some of its suppliers. In August 2021, Evergrande stopped construction at hundreds of projects. Gillem, and his colleague, Nigel were watching all of this play out.
Gillem Tulloch: Nigel put out another report at that stage, I think in about August ’21 saying, “This time it could be for real. This time it’s different.”
Kate Linebaugh: The bubble was finally about to burst. Parker was watching from New York, and despite his previous losses shorting Chinese property stocks, he was ready to gamble again.
Parker Quillen: And we shorted it then because, at that point, it was clear that the Chinese government was no longer enabling the bubble, that they, in fact, were concerned about the bubble.
Rebecca Feng: I think the bubble really burst when Evergrande defaulted in December 2021.
Speaker 6: Evergrande, big news, of course, officially labeled at default as the first time…
Speaker 7: There could be global economic fallout after one of China’s largest real estate developers defaulted on its debts.
Kate Linebaugh: And then what happened?
Rebecca Feng: Basically the investors suddenly realized, “Oh my God, if Evergrande was not too big to fail, maybe others were not either.” So they stopped lending to these developers.
Kate Linebaugh: So what happened to those developers?
Rebecca Feng: They fell like Dominoes.
Speaker 8: Sunac is just one of many developers that has been struggling for more than a year now.
Speaker 9: Giant Chinese property developer, Country Garden, could be on the brink of default.
Speaker 10: Fantasia, Scenic as well as China Properties Group, all defaulting on debts in recent months and…
Kate Linebaugh: Ultimately, more than 50 Chinese developers defaulted and that had a knock on effect.
Rebecca Feng: If things go in chain, it’s like a chain reaction of construction workers were not paid, so construction halted. So the homes that these developers sold to home buyers, they remain unfinished. And the home buyers saw that, “Oh my God, my homes could be left unfinished.” So they stopped buying, and that took away more money from developers. So the fear was contagious.
Action Line: America is no stranger to government-induced bubble markets. Our leaders should recognize the mistakes China is making. There’s no need to get involved. Click here to subscribe to my free monthly Survive & Thrive letter.
E.J. Smith - Your Survival Guy
Latest posts by E.J. Smith - Your Survival Guy (see all)
- Do You Look Marvelous? See My Friend Marc - September 13, 2024
- Kitten Update This Week - September 13, 2024
- Dershowitz Decries “Hard Left” Hijacking of Democratic Party - September 13, 2024
- September RAGE Gauge: Win Friends and Influence People - September 12, 2024
- Stay Diversified My Friends - September 12, 2024
