Nice, creates corporation in tax havens to maximize tax dodging, files for bankruptcy in country that can actually put disgruntled debt owners to task. Good ol' capitalism.
Capitalism, like socialism, or postmodernism, or the labels conservative or liberal are almost devoid of meaning. But please, both the parent commenter and you keep arguing what the true meaning of capitalism is.
Meanwhile I will head to the market and barter some of my guns for butter.
The problem with these terms is not that they have no meaning, it's that they have no context-free virtue. Prohibiting leaded gasoline is good and prohibiting housing construction is bad, even if they're both government regulations. Competitive markets are good and concentrated markets are bad, even if they're both markets.
But people want to assign a label to the category instead of the instance, and then they fight with people whose instance doesn't fit the label -- or whose instance does fit the label but they refuse to accept it because they assigned a different label to the category.
Indeed, or put another way, nuance doesn't exist on the internet. I've seen this time and time again, where one party will blame something on capitalism or government regulation as some blanket statement, without saying which policies they're even talking about. At that point, it's a tribal opinion that was arrived at through emotional means, not logical means.
Better yet, sometimes that is what it is. For example, it's plausible that cost disease is largely a result of government regulation, but it's not a result of a specific government regulation, it's a result of the total number of regulations increasing over time like a ratchet when each one adds another tick to the cost of doing business.
> it's plausible that cost disease is largely a result of government regulation, but it's not a result of a specific government regulation
Yes, but each individual regulation that is contributing to this aggregate cost disease has varying degrees of value. Even if a specific regulation contributes +1 to the overall cost disease, it may also contribute +2 of positive value elsewhere that makes it net worthwhile, all things considered.
So we're back to where we started. Each distinct thing needs to be considered on its own merits without trying to automatically judge it based on what category it belongs to.
Aside from that, I could not agree more with your overall view. It's a good distillation of the broader concept of thinking things through from first principles. I don't want more or less regulations. I want more good regulations, and less bad regulations. In some areas (e.g. carbon emissions), I only want more regulations. In other areas (e.g. housing construction), I only want less regulations. I think these conclusions come from starting with the desired end goal (e.g. less pollution) and working backwards. Many people wrongly start with an ideology (e.g. regulations are good) and work forwards from that.
> Even if a specific regulation contributes +1 to the overall cost disease, it may also contribute +2 of positive value elsewhere that makes it net worthwhile, all things considered.
That's assuming they're not in competition for scarce resources, which they are.
For example, it's more efficient to do something with fewer people than to do the same thing with more people. Not just for the directly proportional efficiency reason, but because larger teams have higher coordination costs and management overhead, and will tend to increase average entity size leading to market consolidation which is very bad.
So you get a certain regulatory budget before your regulations induce the regulated entity to increase the size of the team. At which point your regulation that was contributing +1 cost to achieve +2 benefit would then contribute +25001 cost to achieve +2 benefit. (This is especially true for regulations that apply to small entities, because the cost of increasing the number of workers from 1 to 2 is drastic, often to the point of destroying the business.)
Which means you have to start throwing out regulations that in isolation have +1 cost and +2 benefit so you have the budget left for the regulations that have +1 cost and +10 benefit.
I try to avoid terms like capitalism and socialism. Too many people think they mean too many different things. On top of that, they are pretty old terms by now, and a lot of the ideas contained need to be nuanced by all the history that's happened since.
I tend to agree with the other commenters who are saying we need to look at the individual policies.
Which of course is impossible on the internet forums.
Capitalism only imply that the capital owners decide what is produced, where, how, and how workers are treated/paid. It's in the name. In china's case, it isn't pure capitalism, it's a soviet-style capitalism (or a capitalist sovietism?) so I agree it isn't faire to reduce it to capitalism.
Evergrande files for bankruptcy protection. The China Evergrande Group is the second largest property developer in China by sales. "History never repeats itself, but it does often rhyme", etc.
The chinese stock market (Shanghai index) has been through lots of boom and busts. It didn't affect western market in the slightest. I'd not expect otherwise. The only difference is that if the Chinese economy tanks hard (great depression style), this might be contagious to the rest of Asia and eventually to the rest of the world.
Agreed a crash in China would have fallout but not 08/09. The Chinese housing market was fueled by the familial need to own a house. Which led people to lead no matter what people would buy property, basically "stocks always go up"... "housing always goes up"...
isn't the chinese market even more messed up because people are buying houses that don't exist yet, at least in 08/09 there was something, the asset itself, while overvalued did at least have some value, in china a lot of people just own and are paying a mortgage on a future promise.
This is semi-common practice and obviously when "done correctly" can work out.
An over simplification of Evergrande's issue two key issues are 1. Housing always goes up, but that alone is just a thought it needs an action. The action is 2. they used the sales of an unbuilt, future property to fund an existing, active project.
Again, a relatively common practice, but this is a form of leverage. It allows insane growth because you can start projects way before than you would normally. Of course they were levered up so hard that once the housing market cooled they couldn't sell future projects which then could not fund current ones etc etc.
While it sounds like a ponzi scheme, it's not since "if all the projects" completed then everyone who bought a house would have a house and all peoples would be happy.
2 Most of the building boom was tofu dreg. We are talking from stuffing literal garbage from landfills into walls/foundations to using rebar that crumbles in your hand ending up with brand new buildings collapsing. Classic https://www.reuters.com/article/us-china-building-idUSTRE55Q...
There are many real estate giants and so-called "trust" companies who are incapable of repaying debt right now. Some of these companies have trillions in RMB on their balance sheets. The central bank can bail them out but at the expense of the assets of the middle and lower class. This would only further incentivize cash hoarding, and tighten the middle income trap. It is not an enviable situation.
China will not be captured by the middle income trap because it has already escaped the middle income trap. The middle income in my opinion has a different reason countries get stuck there and its by design. Because the road to high income is protected by western IP protection. Patents are way for the west to forever license fees for their high end technology, China is beating the west in new IP generation and hence will get an ever bigger share of the high end technology fees income. If one thing i expect western nations most likely EU nations to slip back into middle income status and get trapped their with their suicidal foreign policy.
I got this insight in 2016 when the US started its suicidal trade and tech war with China which they claimed would be easy to win. It was never about money or trade it was all about keeping asians down and dependent.
Some bold claims with little evidence. GDP capita flattened at 13k is hardly “escaped the middle income trap”. IPs can be harmful to growth but then again China has never shown any intent to enforce IPs of western origin. There are no evidence of the US wanting to “keep asians down” - many of USAs asian trading partners enjoy less trade regulation. The “trade war” might be counterproductive but was a, imo mild, response to the extreme levels of protectionism exhibited by the chinese communist party.
The article explains there are multiple signals which suggest we can't trust the growth numbers coming out of China. People have been ringing that bell for years. That still applies in aggregates and recent history.
The CDS (credit default swap) on Chinese government bonds went up over 30% during the last week. This means that the market believes that the chance for a default on bond payments went up considerably.
If you believe you are right and the market is wrong, you should short-sell CDS'es and get rich.
We really don't know how fast the Chinese economy is growing. The numbers are largely made up by Party functionaries with no oversight; they often exaggerate and falsely claim to be meeting goals in order to keep their jobs. Independent analysis based on satellite imagery and import/export volumes indicates the growth rate is probably lower, but no one knows for sure.
1. 13K is technically the point where a country goes from middle to high income.
2. The Chinese economy is still growing more than most countries.
3. The US is clearly engaged in zero/negative sum economic warfare against China at the moment - for example read this article and the quoted views by admistration officials therein:
The US is clearly engaged in zero/negative sum economic warfare against China
I suggest that you read the history of post war trade relations between US and Japan. It was a bumpy ride! One big difference: General adherence to IP laws (China does whatever they want), plus both are democracies.
Related: Do you think China can catch-up to developed world in fab tech? I do not. They are hopelessly behind.
Invasion or naval blockade? Your choice. Sure, for a few days, before multiple US carriers float into these waters. It won't last a month if it happens. You would have every high developed country in the world ready to support Taiwan in the event of an "unfortunate incident" with Mainland China. Plenty of people in the US are "itching" for a small military confrontation with M/C. If you think the support for Ukraine has been strong, it will be multiple times stronger for Taiwan, if only for economic (TSMC) reasons.
Yes. I know the history; the US is absolutely ruthless against friend and foe in keeping its hegemony. And it has a long history of having its natsec apparatus integrated into its largest corporations.
As for China "catching up":
1. China is indeed far far behind the US-controlled West if the criteria is purely Chinese designed and manufactured semiconductors using purely Chinese designed and manufactured equipment.
2. The extreme nature of the US semiconductor blockade has surprised even me (and I was kinda expecting the worst).
However:
3. China is developing along a path already throtten by Western companies; far easier than developing on the leading edge.
4. The Chinese market (plus Russia, Iran whoever is on the US shit list) is massive. It can sponsor a lot of technological development.
In the end there is no magic in tech.
Whatever company is at the top seemingly untouchable is there because of a "natural monopoly" created by massive fixed cost and little marginal cost. History is full of tech companies that were at one point dominant but no longer is: Digital, Microsoft, Intel, Google ...
The companies that are used as chokeholds today: NVDIA, ASML, TSMC will at one point join that list. In fact using them as chokeholds probably makes it happen faster.
TSMC 3~5nm is quiet dependent on Apple, Nvidia, AMD products also being able to reach Chinese consumers. Or else the economic off scale that makes using EUV plausible breaks down. With Europe going down the drain and American consumer having a tougher time to make ends meet. Losing the Chinese consumers might as well break TSMC.
There are enormous economic differences within China and given the scale of the country it is much harder to make these kinds of broad-stroke arguments. Looking at gdp per region [0], the main tier one cities are already clearly a cut above middle income countries, even a province like Jiansu with 23k$ in GDP per capita has a higher GDP/capita than Poland and a larger population than Germany or the UK.
The problem with GDP per capita is that it doesn't necessarily correlate with wages (which is what we're talking about with middle income trap).
You can look at Singapore or Ireland for another example. They have higher GDP per capita than the US, but a lot of it's due to multi-nationals storing IP in those countries, and funneling cash through for tax purposes. It's not GDP that gets converted to local wages.
And in the case of certain Chinese regions, if you have companies headquartered there (with multiple sites at satellite cities), GDP measures are going to assign national GDP to that one region, so again, it doesn't necessarily reflect local wages.
> It was never about money or trade it was all about keeping asians down and dependent.
Thats way too much simplification. For starters there isn't a level playing field. Any Chinese company can start a company in the west but if a western company wants to start a company in China you can either start a "second class" entity (a WFOE) or if you want a level playing field with the locals you can use a joint venture but then a Chinese national must have 50+% stake in your business.
Just ask ARM what can happen if you go for a joint venture.
Think about it, who determines what is a 'level playing field'? That's right, the US in this context. Every country has the right to determine it's own policies, and the US shouldn't have any say, and yet is applying pressure for it's own benefits.
The same goes when China insists on one-on-one bilateral country negotiations on the issue of the south china sea instead of multilateral negotiations.
Historically the number one country will always be putting pressure on potential the upstart countries, and Big countries will be big countries. The US especially is adapt at spinning up narratives, so calm down and take a look at the different perspectives.
Plenty of laws touched by government takeovers that involve the USA, trade deals with Japan against Japan's own interests, and even more. Go look it up.
Now that I've answered your question, do you believe the US hasn't had abuses of it's power in the decades it's been at the top? And if not, can you name an instance of it?
The previous mandate of a 50% joint venture in the automotive sector is outdated. Take for example Tesla in China, which operates without a joint venture. Similarly, BMW's Chinese operations are only 30% owned by a local entity, deviating from the earlier 50% norm. Despite certain industry-specific regulations, it's essential to recognize that China aligns well with its WTO obligations—a framework that the U.S. and other Western nations have both agreed upon and ratified.
Neither the Vietnam war nor Plaza Accords were about "keeping Asians down". Unintentional side effects is not intention. A very important distinction.
Japan's recent Stagflation has plenty of obvious internal causes. Blaming the west for that is some weird cope.
China is an expert at manipulating their currency and internal markets for global advantage. Countries reacting to China's top-down aggressive self interest in a global market is only logical. Other countries engaging in those markets aren't there for charity and nor is China.
>Japan's recent Stagflation has plenty of obvious internal causes. Blaming the west for that is some weird cope.
I don't think it extends so far since it's the 80's but I can see why one would blame the US there.
Around this time Japan was forced to do technology transfers to the US, to have minimum marketshare in japan for US cars and semiconductors, to have unfavorable monetary policy.
That smells equivalent to being a vassal at gunpoint.
Of course European countries helped pressuring and it being the cold war japan did not have much developed (or allowed alternatives) for it's export based economy even if it did have an army, more independence and a more varied political landscape.
I'm from Mexico. Given the landscape with energy worldwide, the current president has been overhauling the energy sector to keep foreign influence low. It makes sense in the current geopolitical climate, which really shook the energy market worldwide. I mean, France straight-up nationalized Electricite de France for example [1].
The USA is not happy about this [2]. Understandably, this affects American companies' business in the country. The USA is happy do take action in defense of its national security and its national industries, but fights back when other countries do the same.
Those people you tell, in writing, signed by your highest authorities: if your people start dying at the hands of another country, our people will start dying with them.
China is putting a lot of money down with its Belt and Road initiative, and specifically has tried to attract partners/allies calling it vehicle for prosperity [2]. In Africa, they've been building infra and haven't shied away from forgiving debt [1].
This certainly plays in their interest. The USA's support for global trade and the economic prosperity of countries key in their trade network (like Japan, for example) are similar ventures. I'm not saying China is making countries as prosperous as itself, but it is certainly working to make being a Chinese ally economically attractive.
The US is chasing hegemonial "interests overseas". Every other country, that tries to develop a sovereign position in too many industrial sectors contradicts that.
Thats how the US justify their industrial/political espionage on basically all their "allies".
LOL at accusing the US of industrial espionage in a discussion about China :-))
Nota bene, I'm convinced the US is spying. It's just what China is doing in terms of spying and forced industrial transfer makes the US stuff look kiddie play.
Given China's rise and size, US Asian hegemonial interests primarily trend towards making any not-China country in the region as economically strong as possible.
“Beating the west in new IP generation” is highly misleading. China is probably the best at IP theft, and they are certainly beating everyone at that game. Have a look at their EV cars that look like BMWs and Fords. Or their completely stolen Boeing plans. I sure as hell would not get on a fake Chinese plane, that’s for sure.
Are they actually underwater or do they just have higher loan payments than rental income? If it's the latter, let them sell some properties or transfer them to the bank in lieu of loan payments.
Who says those properties are worth their book value? This is how a crash happens these days - distressed asset holders forced into fire sales of the assets themselves, lowering asset values and putting more of the holders into distress.
They don't have to be worth book value to be worth more than the outstanding loan principal. This is also why it can make sense to pay the bank in real estate. The bank doesn't need to sell it immediately because they don't need to pay a mortgage so they can just sit on it and collect rental income until they can find a buyer.
Another alternative is for the real estate trust to sell new shares into the market and use the money to pay the bank, or pay the bank in new shares. That dilutes the existing shareholders but doesn't force a fire sale of the properties.
That happens all the time in the US and other countries. Banks typically try to sell off those repossessed real estate assets fairly quickly because they aren't really in the landlord business, but when there's a supply glut they may have to hold for several years.
US regulators also require banks to move non-performing loans and assets off the balance sheet. Allowing banks to hold them makes the balance sheet murky and hard to determine if the bank is solvent. In the 2008 financial crisis banks sold houses off in blocks of 1,000 at a time to hedge funds.
Banks don't actually have as much cash as they have deposits. When you take out a loan they just credit your checking account and debit your mortgage account, which cancels out. When you pay the seller they debit your checking account and credit theirs. The amount of cash they hold hasn't changed.
Whether thing backing the credit to the seller's checking account is a mortgage loan or the deed to the property likewise has no effect on the amount of cash in their vault.
That's assuming your sale is the only data they have about the value of your assets. But real estate sales happen all the time.
Now, if everybody is selling every building at a large discount, that's a housing crash, and highly-leveraged real estate companies are toast. But that should only happen if there is a real estate bubble, in which case a market correction is ultimately necessary and the entities that buy at the peak of the market are supposed to lose their shirts.
What you want to do in that case is not to save them. They're done. What you want is to prevent a cascading failure into the rest of the economy.
there is deflation in china right now. Why would you buy a house today if the money you have today would buy a bigger house tomorrow?
As a result, nobody can sell. The only way to move any inventory is to dramatically slash the price. Everyone is doing this, so you gotta do it even more than the next guy (or just hold on to the property but what if you need the money/can't maintain the property?). I've heard of 2mn rmby apartments in beijing going for 100k
Typically real estate companies use properties as collateral for loans. So they can't sell those properties unless they pay back the rest of the loan at the same time, which they probably can't.
They might have some properties that are not collateral, but even selling those imposes a problem: in the current market, most likely they will be sold well below book value. This automatically devaluates the value of any other property which they would like to use in the future for collateral and it will make existing lenders very nervous as well.
They have hundreds of thousands of unfinished apartments, and no money to finish them.
And even if they could, no one wants to buy the unsold apartments.
The average person in China owns more housing than the average person in the US or the EU.
This, with house prices being roughly equal but incomes being 1/6th on average, and there being about ~2.5B unfinished sqft of space (~2 sqft per person), and a rapidly shrinking population.
You do the math. Houses have been in a massive bubble in China for a long time, on nearly the same level as the Japanese bubble.
Who knows if it's finally going to pop. But the writing definitely seems on the wall now.
They are so far under water that there simply are no buyers, at all, and there likely never will be buyers. A lot of this construction was just to keep the wheels spinning. There are entire cities that are empty.
Some of these companies have trillions in RMB on their balance sheets.
I don't understand this sentence. It is nonsensical to use balance in this way.
You wrote "trillions in RMB". Let's assume (your hand-wavy use of the term) balance sheet means: outstanding debt. Further, each 1T RMB is 137B USD. How many companies in the whole world carry more than this much debt? Let alone Chine property developers? Wildly overstated.
Also, central bank's can print money, by definition. They can also buy debt issued by these companies to repay maturing debt. Then they can forgive this debt. Why would this harm "the assets of the middle and lower class"? The misunderstanding of monetary theory appears weak here.
From a quick google Evergrande (officially) has 2.4 trillion Yuan in debt, and 1.7 trillion Yuan in assets. Assets seem to have lost more than 20% of their value since 2019.
It is the largest one of the Chinese real estate developers, but there are a couple others that might break through the 1T Yuan mark.
That is 90 billion USD shortfall. Assuming lenders will have to take some haircut the no. is big but not something that will break the economy!! am I missing some nos.?
One is that apparently a bunch of suppliers and contractors for their projects have not been paid for a while, so those will default or go bankrupt as well, and cascade further down the economy.
The other thing is that Evergrande sold mostly through presales so now there are all those paid for but unfinished apartment blocks.
The lenders in the Chinese housing market are mostly Chinese citizens. In modern China, rather than buying a house, you buy a promise of a house, then the house builder builds it for you. The house builders though have these huge debts, and they've been using money from new purchases to construct their backlog of homes.
The $90bn outstanding is $90bn in outstanding housing construction, not just abstract debts to banks which could be written off or bailed out. Citizens will need to continue paying their mortgages on houses that don't (and won't) exist, which will cause some civil disquiet. Construction companies are going to have a shortfall of $90bn worth of work in their pipelines, which will mean mass layoffs. Entire large towns will go unbuilt.
Evergrande isn't the only one in this situation, it looks like a handful of large house-builders also have these uncompleted backlogs being paid for with new orders. The collapse of one might prompt the collapse of the others. As house-buyers become less confident that their house will ever exist, they'll stop buying new stock. When they stop buying new stock, the other house-builders collapse under the burden of their backlog of construction projects.
That sounds suspiciously like a pyramid scheme: the only thing financing the current construction are payments to new construction. How did they get into this situation? By continuously selling under cost, or perhaps by siphoning off profits?
Land price keeps increasing caused this problem. You can just imagine land price to increase 50% YoY (hypothetical number) and you will understand the situation.
Basically you can not have enough cash on hand to purchase the next piece of land for your development, but you want to always plan for the next step.
The first time it happens, you can call it a mistake. But second, third? Is int't it obvious that, seeing this trend, you should calculate the risk and factor in the land cost increase when pricing your offer?
It's a different issue than what you are imaging. It's not that they sell the property for less than the relevant land cost, it's that the increase is too steep that they can't buy and build the next one without pre-selling the lot, the company just doesn't have enough cash.
The magnitude of land speculation profits is not dictated by physics. If companies weren't able to pay what they did, the speculators (local governments in this case?) would live with less.
Developers compete with each other, so they will always take as much leverage as allowed, but the rules are adjustable by lenders. Lenders compete too, but they usually wind up backed by a central bank or other political entity, and that's the point at which changes can actually be made. Of course, there is no guarantee these changes won't create problems (Three Red Lines were a decade too late) but they can be made.
The way OP described it, yes, it sounds like a ponzi, but in reality it's more like crowdfunding. First, the developer takes credit from a bank and uses own money to buy a land. Then, in order to start construction, the developer sells what is basically an obligation to build real estate and transfer the rights to buyer. These obligations are obviously cheaper than the expected price of real estate in the future, and also cheaper than already-constructed real estate now. The developer does not sell all the future real estate at once, because as the time goes by, and construction comes closer to a finish, the obligations become more expensive - it sells only the amount necessary to fund the next step of construction. After the construction is finished, developer sells leftover real estate with a markup big enough to finance its next project.
When the housing market is good, this scheme brings real estate costs down, because you can buy cheaper "not-yet-build" flats or houses, and the developer can seek funding without overpaying on the bank loans. But if the housing market tanks, the development freezes, and the first buyers take a loss. I don't know about China, but in some countries such obligations are mandatory insured from the default, so people can get at least some of their money back. In others buyers are left with a piece of land with unfinished building.
China lacks a safe financial system that the ordinary person can invest in, the way that an American can park funds in an index fund and expect a reasonable rate of return. (The Shanghai and Hong Kong indices are not as healthy as the general economy.) It also lacks generous pension schemes like those in Europe. So part of the reason this is so bad is because most Chinese citizens put their nest eggs in real estate, and now the bubble has popped.
If you think the S&P500 and NASDAQ in recent years merely gives a "reasonable rate of return" you'll realize that there really aren't any other economies with a "safe financial system". Most markets don't have that level of growth.
The Chinese predisposition to invest in real property is much more cultural (and irrational) than what you suggest. The Chinese stock market is actually much more rational in this regard as for quite a while you could buy Chinese real estate stocks with pennies on the dollar, price to book ratios much less than one. Traders know the real estate bubble is going to burst sooner or later and the stock market priced this in. The real estate market which mostly consists of individual buyers didn't quite get the memo until recently.
Speaking personally, in Chinese circles, the social pressure buy an expensive apartment is honestly overwhelming, and it's not because people knew that the property market was a good investment, it was just something they thought a respectable person should do once they earned some money. Family members without any financial literacy kept thinking I was an idiot for holding FAANG stocks instead of buying an apartment. AFAICT I'm the only person in my social circle (including people who should have known better) that has avoided the recent property slump (in Hong Kong) by steadfastly refusing to enter the property market at its height a couple years ago. It's nice to not have people nagging me about it now.
I don't disagree with any of that. Most of the other developed countries though have some kind of government or corporate (in the case of Japan) safety net that China lacks. The only example that I'm aware of that lacks either is South Korea, which has extremely high elder poverty rates compared to OECD peers.
I guess the word I was looking for to describe the Chinese financial system is 'immature.' It is unfortunately not uncommon for some Chinese firm to get delisted for accounting fraud or some other type of impropriety, so investing in the indexes is a worse idea than it is in many other countries. And then there's all the marketing of dubious financial products that people inevitably lose their savings on and protest; before people swarming the Evergrande HQ demanding their money it was P2P lending and many other scams.
Note that this is the book value. Probably based on some valuation from years ago and only minimally adjusted, mean while property prices have crashed.
Moral hazard and inflation. If I know that I will be bailed out with a certain probability, then my actual cost of capital is much lower (since I am not expected to pay the entire volume of interest.)
For instance: why not make the investors whole again instead by giving them the "printed money" instead of going through the middle-man of propping up these failed giants?
In the US sure, where its blasphemous to slit the throats of the leisure classes for their excesses. In China they made Jack Ma disappear.
Through out history when it gets time for the Kings & Queens to waive the debt of the plebs away, cause they have nothing left to pay, the Rentier classes take the haircut.
In the US the rentiers have owned the Kings & Queens for a long time. To the point where any American institution cant touch them. This is not the case in China. There will be mass disappearances and cullings (already have been).
Well, start with the first 10, then remaining ones will emigrate and simply assign bounty for any head of CCP member based on the rank - until the Party is eliminated. How about that? Don't underestimate the money - it goes the long way.
Still, human history shows us that money always wins. People have natural instinct to acquire wealth. No political regime has remained viable for a long time if it tried to go against this instinct. Authoritarianism works fine; in fact i am even in a bit of doubt about democracy being the better social order, in any case our empirical data to confirm that is insufficient - but even authoritarian society should exploit, rather that try to suppress, this basic motivator of the people.
So far we can't see CCP making this mistake - which sort of confirms that Party has a healthy self-preservation instinct. Let's say, they are trying to do everything to avoid collapse of real estate prices because that will hit retirement savings of too many people, and they seem to accept lower rates of economic growth if that will be necessary to achieve that.
Still, you need money to control the army and keep it interested. Then there comes a choice of either being unable to do it because of not raising enough cash from society to make a sufficiently big army to keep population in check, being able to have better income they can have in civilian life; or doing it and ruining the competitiveness of the overall economy - like the good old Soviet Union.
Now, in the post-industrial era, we have a third threat. Extinction. And China may actually combine all three.
Money is the force of reason, ignoring it comes at one's own peril regardless of the force one controls: it means going against common sense that established itself through the power of competition, in favour of some arbitrary political theory or just someone's wits. Even if it succeeds for a while, it always reduces overall quality of the system and increases it's vulnerability.
> Still, you need money to control the army and keep it interested.
Making payroll is never an issue for a sovereign that controls a central bank that controls their own currency. You're completely missing the point, because you're thinking in terms of money. A country isn't a business, or a household, it doesn't budget in the way you think.
> Money is the force of reason, ignoring it comes at one's own peril regardless of the force one controls:
Money is a floating-value paper proxy for material wealth. When there's a shortage of material prosperity - when people aren't building stuff, that's when you get a problem. Your position has just as many ideological blinders on as the one you think you are making arguments against.
The USSR collapsed because it failed to provide material prosperity. China, by any metric you could measure, is wildly succeeding at providing that material prosperity. That is what the party is focused on, because that's what's going to keep them in power.
Idk how you can include any of those but North Korea in the list (North Korea only exists because China secures it). Russia at least, is a good example of the opposite: give people chance to earn and invest money and enrich themselves and they will give no shit about even the most ridiculous things government does.
Soviet Union has collapsed while having whole lot more economic power and raw output of just about every industry, and was much more up to date technologically, but it deprived people of their basic instinct: to save and invest money and grow rich. Today's Russia allows and encourages that. Moreover, it even allows people say, to blatantly ignore taxes on all levels (i know people who make millions bucks per year in Russia and they don't know what tax number is, receiving and spending money through the banks in the open - and banks even help then when they need to make that money look legit abroad). As long as you don't try to oppose the great Pu or mess with politics overall, the regime has nothing against people enriching themselves - so the support base is rock solid and need for violence to maintain internal order is next to nonexistent.
Russia isn't democratic, but it is capitalist in the sense: you can own capital and government wants you to, and sees people who have capital as by default more well-behaved and loyal than those who don't. The sickest shit Putin may say on TV is shrugged by those people as "Pu just wants to make those peasants happy", and they may be even right.
Those are all countries in which I'd hazard a free and open election, without a thumb on the scales and voted in by all citizens, would topple their governments.
Your description of Russia seems accurate, ~1995 to ~2010.
However, policies appear to be changing into tighter, more direct state control of oligarchs, in an effort to ensure civil stability.
Additionally, Putin is now 70... which is getting to the age that more laissez faire dictators turn increasingly autocratic in response to any external disturbances of their social control.
At some age and tiredness, it seems like the blunt approach trumps finessing a solution between multiple competing interests.
And... not to put too fine a point on it, but Putin did just survive a coup attempt, which wouldn't have launched if there weren't some support for it among the myriad power brokers in Russia.
I don't mean oligarchs. I mean everyday men and women. People don't want to be politically active because they know that Putin allows and wants them to acquire wealth (and even has no problem with them exporting that wealth abroad); and they also know that the masses don't want them to be allowed that, and if Putin is out, most probably masses will have it their way.
Ironically, today the idea of reintroducing capital controls was rejected, officially, "because it was obvious that people will quickly find ways around it anyway". Simply put, there is no need to further increase already terrible level of corruption by introducing another useless but corruption-inducing regulation.
> Soviet Union has collapsed while having whole lot more economic power and raw output of just about every industry, and was much more up to date technologically, but it deprived people of their basic instinct: to save and invest money and grow rich.
The Soviet Union pissed half of its economy away into its military, and the other half into its particular brand of waste, inefficiency, and corruption. It had a shortage of housing, basic consumer goods, and appliances - a shortage of material wealth, which became untenable by the time the fourth post-war decade rolled around, and everyone started wondering why the country has 12,000 nuclear warheads, but is still so goddamn poor.
If material wealth weren't the problem, or if Gorbachev didn't decide to stop imprisoning people for complaining about it, it would still be around today.
The world's three meals away from anarchy, if there were serious material shortages in the US today, nobody would give a crap about what monetary policy it follows, or whether or not you can save. King Bread is a ruler you swear fealty to, compared to him, King Dollar is something that comfortable philosophers build elaborate arguments for and temples to.
It only shows us that current Chinese regime is a civilisational dead end.
Also, by that point, they didn't have the money. China was overpopulated and did not have marginal income to pay them, and the productivity was overall too low. No one in China had money, so force ruled.
> It only shows us that current Chinese regime is a civilisational dead end.
Creating an all-encompassing historical 'rule' like 'money always wins' and then discounting evidence of a blatant counter-example is not generally a method that ends in good outcomes.
See: all major failed political movements based on an ideology that refused to adapt to conditions that did not line up with its dogma.
The Soviet Communist Party also had millions of members, but we all know how that ended - hardly with a bang and a whimper.
Folks join not for ideology but for the social standing and future career prospects - you not going to be a senior bureaucrat or military officer if you ain't a member.
Actually it's the US government that made a killing with TARP loans and acquisitions.
Bankers lost their shirts in the whole thing - having to pay interest on those TARP loans or had to sell their shares to the government to get capital to survive.
There is a sort of balance where one market going down makes another go up. For example, real estate assets everywhere but China now look better in the long term.
Bank crashing = money printing = asset values go back up. Can't lose.
> Bank crashing = money printing = asset values go back up. Can't lose.
If you buy real estate right before a housing crash, you immediately lose a lot of money vs. having just sold or not bought it, and even if the prices recover in the long term it can take years.
Meanwhile you can't refinance the loan at the new lower rates because you're underwater and no longer have the collateral for a loan that size.
Then there's the "risk" that people learned the lesson of the last housing crash and don't do the same thing, i.e. reinflate a housing bubble right after it pops. This wouldn't even have to be not lowering interest rates, it could just be lowering them but continuing the existing momentum behind relaxing zoning rules so the lower rates can fund new construction. Then the low rates save the rest of the economy but real estate prices stay reduced because the lower interest rates are offset by (and pay for) new construction.
I should have been more clear - this is to indicate that "we" can't lose, meaning society as a whole. Individuals for sure can lose their shirts, but overall, this bank collapsing won't be an issue.
This bankruptcy happening and not causing a huge, devastating, world ending crash is a gigantic feature of the Chinese economy. Not a bug. It means asset values in China are deflating in a semi-controlled manner.
People love to complain about the banks that are "too big to fail". Now this huge company that should really be too big to fail is failing, and the world isn't ending. The only people who are upset that everything isn't tumbling down, are the ones hoping for the crash.
Expectation is that across the world, sustained med-high interest rates will cause deflating of multiple bubbles, Private Equity, zombie multinationals, residential+commercial RE.
It doesn't feel like a "black swan" but some of these approaches to making money could be going away. Dropping interest rates and printing money requires a set of circumstances which aren't there.
Deflating those bubbles will destroy a lot of individual wealth, that is where it's going to get bumpy.
Yeah, if you buy a house when you have little equity, your equity can go up manyfolds from the purchase, but at the risk that if you time the purchase badly, you’re in a bad spot for many years.
Housing can't be inflated and unaffordable at the same time. Someone is buying properties, driving prices higher. Those someone can definitely afford housing.
That said, nobody is seriously claiming Chinese youth unemployment at 50% unless you are looking at something like labor force participation rate, which is then a similar number for the US as well.
No, it can actually be 50%. Why do you think that's not serious?
Greek youth unemployment was at 60% during their peak debt crisis. China's mega debt tsunami is starting to slam the shores right now.
China already tried its hardest to suppress youth unemployment rates. Student councillors in China are given strict KPIs to ensure their students graduate with a job. So obviously they co-operate with shady companies that give out sham employment contracts, and then pressure the student to sign, all to give out an impression of 'graduate employment'
China faces a severe crisis of over-education. China educated many university graduates, but has no industry to actually absorb them (Many such industries were crushed by the government, such as gaming, tech, or education).
China's factories desperately need cheap labour (and are starting to lose competitiveness because of this), but the over-educated grads are absolutely unwilling to go back to the factory floor like their parents. So you have millions of grads all dreaming of sitting in a prestigious office job, where none exists, so instead they all compete for government jobs, where there's 1 role for 100 applicants.
The Chinese government is already enforcing a streaming system in middle school, with at most 50% of students going to high school, rest going into technical education, but its too little too late.
Don't know about China and your country, but in my country they resolved unemployment rates by limiting the number of tickets that the ticketing machines print in every unemployment office. Now unemployment numbers are record low.
If they have many university graduates and lack cheap labour, why don't they let those graduates build robots or organize the outsourcing of the labour into countries with cheap labour?
How can there be a surplus of educated people who are unable to organize something profitable?
I wonder how nominative determinism works across languages. Given enough languages and names, one is bound to come up with any number of people whose life is nominatively determined.
I have an uncommon name for someone of my generation and the net effect is that people would often take me for someone more sophisticated than I am in reality.
Wow, I thought you were making that up. It’s real. Why not just repeal the child limitations then? No reason to keep them in place if the rate is that low.
They did repel them, twice (once to put the limit to 2, now it's 3).
They also forcibly 'immigrate' SEA women since 2010[0], forming a combo with the Gulf countries : the Gulf enslave the men under false promises, then cartels raid villages, capture and sell the women (Vietnam is the only country where the state is strong enough to limit that). Sadly is hard to investigate the issue correctly, given China's lack of transparency, but it is possible that despite relatively closed borders, China now lead the world in sex trafficking, overtaking the Magreb (morroco to lybia).
Chinese, especially in the upper tier cities, don't want babies now. Same as the West and for roughly the same reasons. Historically kids stayed with their parents until marriage who would then look after the grandchildren while they work. Now the parents are getting left behind in the villages or low tier cities while the kids fly out to the higher tier cities to work leaving no childcare structure and everyone grinding away at work with no time to find partners.
The economic crisis has been brewing for a long time. No country can just ignore basic economics forever. They have been living off of borrowed time (and borrowed money) for a while now. The bill will come due soon. This is eerily similar to what happened to Japan in the 1990s.
Fertility rate across the world is dropping even without government intervention. Who knew having a higher standard of living means you don't need as many kids to work the farm, and indeed, that people simply don't want to give up that lifestyle in order to have kids?
Yes, but the fertility rate drop is just too fast in China. There will be way too many old people requiring care for too few people in the productive age.
Smaller rich countries can solve this problem by importing young workers from poor countries. But on China's scale of 1.5B people that's not really feasible. (China also isn't really that rich on average, isn't attractive for immigrants and isn't culturally welcoming to immigrants)
China has done fantastically well economically, and in terms of health care, education etc. There are other countries which have had strict population control and have done well economically - such as Singapore, South Korea. I see nothing wrong with poorer countries keeping restrictions on population growth - so that they can increase the standard of living and make sure everyone gets education and healthcare.
It may work in short term but then you run out of population in long term. And suddenly any gains from short term improvement is under a big question mark.
Future generations have to pay off the debt generated by the current generation. Same as everywhere. You can either grow the population or make the economy more efficient, China still has the latter lever available to pull.
I agree in theory with you. But you can 'bank' labour for later on. Building infrastructure (that will last) when you have a population bulge, means that the generations after can take advantage of that infrastructure, and have to do the lower amount of work, of maintaining it. This can go for things like education, investing in businesses, and generally any capital.
Of course you can also over build this capital that will never be used, but will need to be paid back (for example a local government pays to build a town that there are no people to fill it with) and the maintenance is too much, but you still have to look after the people who did the building.
China has a poor social security net. The one-child policy has resulted in a couple having to provide or care for 4 parents and 8 grandparents.
That's is in no way sustainable on an individual level and worse on a societal level when you have a small working population and a large number of people that require care.
A declining fertility rate doesn't just change change the population, but also the relative distribution of each age group. A fertility rate of "N" means the next generation will be "N/2" times as large as the one before it. Because of this you can easily model what a society, composed of successive generations of a fixed fertility rate, would look like. To keep things simple, imagine everybody gives birth to all their kids at 20. When they actually do doesn't matter, it would always converge on the same ratios:
----
Fertility Rate of 2 (average age = 40): 100 80-year-olds, 100 60-year-olds, 100 40-year-olds, 100 20-year-olds, 100 newborns.
Fertility Rate of 1 (average age = 63): 100 80-year-olds, 50 60-year-olds, 25 40-year-olds, 12 20-year-olds, 6 newborns
Fertility rate of 0.5 (average age = 74): 100 80-year-olds, 25 60-year-olds, 6 40-year-olds, 1 20-year-olds, 0 newborns
----
You can also estimate the ongoing population rate of change for each fertility group by removing the elderly generation, adding a newborn generation, and contrasting the new population sizes:
----
Fertility Rate of 2: 500->500 = 0% population change per 20 years
Fertility Rate of 1: 193->96 = 50% population decline per 20 years
Fertility Rate of 0.5: 132->32 = 76% population decline per 20 years
----
In the developed world most fertility rates plummeted around 1970. So, assuming nothing radically changes, we should start hitting our 'equilibrium point' about one life expectancy away, so sometime around 2050.
Except it’s been loosened after decades, and suddenly the economy tanks?
The more likely explanation is Xi’s authoritarianism and crackdown on the private sector. Anyone with a brain in China is trying to get their money and themselves out of the country.
Of course, demography is destiny, but the point is the sudden worsening of China's economic outlook did not coincide with tightening of the one-child policy, quite the opposite. The challenge for China is that it got old before it got rich like the European nations or Japan, and this transition will be much harder to navigate.
It has been loosened because of the inevitable damage it is causing. Look at china's demographic pyramid. Their widest demography is 45-60. Their birthrates are very low. As those people age and there are fewer workers entering the workforce it will lead to social problems (as it did in japan and currently is in the west)
That's not to say there isnt a big crackdown on just about everything right now. There is. Bankers forced to read xi jinping thought and write essays on it monthly etc.
This is a crisis happening everywhere in the developed world. A stable practical fertility rate is 2.1. South Korea has the lowest fertility rate in the world, below 0.8, and there was no government meddling there. The US fertility rate is also plummeting and now down to below 1.7 and heavily biased by income. The birth rate for households earning < $10,000 is about 50% higher than those earning > $200,000 [1] with a near perfect linear relationship for incomes in between. And obviously there are way more poor households than 'rich.'
It's so odd to me that of the many issues people freak out about, this one ranks relatively low. We're looking at a non-speculative and entirely real demographic collapse of the entire developed world, in quite rapid order. For those who may not appreciate the impact, a total fertility rate of "N" means you will trend towards a system where the population of one older generation will be "2/N" times larger than the next younger generation.
So if you have a fertility rate of 2, each generation will be exactly the same. If you have a fertility rate of 1 then each older generation will be exactly twice as large as the next younger generation. So, for a simple model, imagine we all gave birth at 20. You'd trend towards a population distribution of 16 80-year-olds, 8 60-year-olds, 4 40-year-olds, 2 20-year-olds, 1 newborn. Systems of social security, healthcare, and the general economy will just collapse under that sort of pressure.
It does, but on a global scale this only works as long as there are enough countries with high birth rates.
And birth rates are going down basically everywhere.
They are higher in less developed countries, but still falling.
Go to https://ourworldindata.org/fertility-rate and select some regions, see for yourself. Africa as a whole has declining fertility rates. Even if you look a high-growth countries such as Niger or Democratic Republic of Congo, the fertility rate has been declining in the last 20-30 years, and you'll be hard-pressed to find a country where it has gone up.
> Systems of social security, healthcare, and the general economy will just collapse under that sort of pressure.
Maybe we could buttress them by all the 4x to 10x productivity gains that automation has brought us. [1] Maybe we could cut back on all the useless, extraneous, low-to-negative ROI shit we're doing. We have options, here, that don't require a population ponzi scheme.
(Also, you can't be blaming this situation in China on demographic collapse, when it allegedly has massive youth unemployment.)
[1] Remember, just a few decades, when somehow, a single working adult could comfortably provide for a whole family? Why can't he, anymore? What has changed? We are more productive per worker, we have more workers participating in the economy, but somehow, you think we can't provide for everyone.
Expectations of comfort are always changing. Humans are a competitive species.
If the expectation for quality of life for the vast majority is living off of 1 income household, then that is an acceptable quality of life. If that expectation for the vast majority changes to quality of life by living off of 2 income households, then a quality of life from a 1 income household is no longer sufficient.
Also, expectations of work itself change. It could be possible that a sufficiently large portion of the population is simply unwilling to change bedpans for a price close to what old people themselves can afford (even if the cost is implicit from getting services from a family member). In this case, it becomes a political issue of how to allocate labor, i.e. who to tax, how much to tax them, and who gets the benefits of government spending.
This [1] page shows changes in real average household incomes from 1965 to 2020, broken down by quintile. Keep in mind the sharp increase in the number of necessities in modern life as well as things like healthcare, education, and housing inflating in price way beyond the rate of nominal inflation. Economically, many people certainly had significantly better lives in the past. Of course that would also have been a life generally without mass computing, the internet, and other such things. And I did say "many people", as it seems the bare median has probably moved up just enough that they're probably better off, but it's really uncomfortably close when one thinks how much we 'ought' have improved.
> Remember, just a few decades, when somehow, a single working adult could comfortably provide for a whole family? Why can't he, anymore? What has changed? We are more productive per worker, we have more workers participating in the economy, but somehow, you think we can't provide for everyone.
In Thomas Piketty's Capital in the 21st Century, he argues that the period you're talking about is an anomaly historically due to the postwar boom of an unscathed US, that many people take as the historical norm due to recency bias; no one alive today was alive in the 1800s or earlier to see just how unequal life among the poor and rich was. He argues that this inequality is the norm rather than the exception for what is happening today.
How does he respond to the 1971 [1] argument? That whole page is alluding to the ending of the Bretton Woods system. Until 1971 the USD was directly convertible to gold at a fixed rate. This was supposed to prevent bad economic behavior because if we weakened the dollar too much (by e.g. 'printing' money), then people/countries could 'bankrupt' the US by converting all their USD to gold. Of course we [shockingly] did print too much money, defaulted on our obligations, and gave the rest of the world a 4 finger salute. A famous quote from Nixon's treasury secretary at the time: "The dollar is our currency, but it is your problem."
I find the consumer price index 1775-2012 quite interesting. It's really easy to see how nearly everything listed there could be directly, and very likely causally, linked to giving the US government the power to start printing tens of trillions of dollars. Because that money invariably makes it to the most well off in society, even on the rare instance when it starts somewhat lower. If not one has to come up with an alternative explanation for what happened at that time, because it's like in 1971 that were just a button pressed saying, "start destroying socioeconomic stability."
One current presidential hopeful has a policy position of undoing that, by having the dollar become a stable unit of measurement against real commodities. It's an interesting idea, and perhaps one more realistic than going back to the gold standard.
I don't entirely understand the difference? As the USD has no inherent value, if you stabilize it against a measurement of various commodities you end up with the same thing where 1 'unit' of commodity groups = $x USD. Perhaps it's that the volume of commodities expands more regularly, so eases expansion of the monetary base more than e.g. gold where there is limited supply expansion?
Thanks. I'd never read nor heard about this. It seems similar to Iran - another country with a national birth control program [1], which worked far too well, and which very few people know about.
Truth be told they didn't have much of a choice, as it prevented around 400mln births in a country that has been a net food importer for over 20 years:
I heard someone on the radio recently speculate that due to the political climate China could prefer and produce a Japanese style decades long unwinding of economic bubbles vs a western style resolution through crisis. Of interest also was the level of Municipal debt and it's stratification between provincial higher default risks and a handful of real high flyers.
Japanese demographics were also much more stable (even if low in general). China will have a much more dramatic demographic shift. The fertility rate was ~6 in 1970, ~2.8 in 1980 ... 1.09 in 2022. These strong generations will continue retiring, but there will be few young workers to replace them.
Don't know where you're from or your experience but you maybe want to update your priors on the meaning term first world, which peaked in usage roughly 1948...
The mean and median living some places might surprise you. For example visit HongKong, Singapore, Taipei, Tokyo, or a mainland city this millenium. Or dont'!
First world, it mostly conjures automobile culture and car infrastructure which is nothing special these days but check the world's largest car makers... you would guess Germany Japan or even the USA recently no?
It would be interesting to see the blast radius, specifically in terms of countries like Russia, which is becoming increasingly dependent on the yuan as it is exiting its relations with the West , huffing and puffing: https://carnegieendowment.org/politika/88926
Could be, but the effects wont be so pronounced anymore i think. The biggest ripples have already passed through during covid and the time after.
The covid induced shortages like stock shortages, chip shortages, container shortage etc have already been dealt with and lots of companies have reduced their dependencies on china, etc…
SCMP says CKC Holdings only reduced prices by 16% on less than 300 units in a single building in a non-premium location. The 30% figure only comes from shitty, click baity
"news" sources. Property analysts felt that 16% cut was in line with the market. No one with deep understanding of that market is clutching their pearls too tight.
> China stopped reporting youth unemployment, estimated around 20-50%
youth unemployment data is just another toxic data that rarely used before in China and others just like "Total Debt" metrics that only used against China for some reason.
> China's economy slipped into deflation
Mainly caused by normalizing pork price, last year it went wild due to swine flu.
To soften this a little bit, and I mean a very little.
The youth unemployment numbers are hard to judge, could be right but it is hard to tell on the outside.
The fertility figures are a long term issue, China is not alone in that but something to keep an eye on.
Those import/export figures... now that is the the most telling of how the economy is fairing nowadays. For all the speculation I have heard for decades, that is the most alarming stat I have seen. That is where the rubber meets the road for an economy that is so depended on those things to keep society function vaguely well. Stay tuned...
Hong Kong is a completely separate market to mainland China, the latter is further segmented by region/city. Li more or less withdrew from mainland China in the past decade or so.
Bankruptcy law typically trumps virtually all other laws, with not much to guide the court's discretion.
International bankruptcies are even weirder. In this case, US bankruptcy law has the power to intervene in ongoing bankruptcy proceedings in Hong Kong, Cayman's, etc.
Bankruptcy law protects debt-holders and the company, but not other stakeholders. As far as I know under US law the court has no basis to change anything for reasons of economic policy or impact. If the Hong Kong court pushes mainland Chinese interests, it's unclear to me how the other courts would respond.
Further, the due diligence required to qualify debts and debt-holders could uncover some unsettling relationships. I can imagine China viewing US bankruptcy discovery as an fishing expedition for intelligence.
Huge amounts, even larger consequences, and super-power competition would make this difficult even if the law were programmatic, but here so much depends on the court's discretion, and the court itself is the finder of fact. ("So much depends/on the red wheel barrow"?)
In the US we're lucky that these proceedings are mostly in the open and on the record (albeit sometimes only to record the results of debt-holder negotiations).
Yeah, not really. They issued USD debt and chose NYC as the legal jurisdiction to make their bond more attractive to overseas buyers. There are probably a myriad of overseas entities involved. It is very unlikely this will spread back to Mainland China.
Bankruptcy law typically trumps virtually all other laws, with not much to guide the court's discretion.
No, sovereignty does. We learned that during the CoCo bond 100% write-down during the Credit Suisse forced merger with UBS.
BTW -- The writedown is incomplete. There are numerous court battles in numerous jurisdictions that may take 5-10 years to wind down. And, no, I don't think the Swiss Gov't will lose any of them. In the end, UBS will probably throw some pennies at these poor fools.
Those poor fools got a premium rate for this to happen. Like, the entire point of AT1 bonds is this can happen. Other banks have AT1 bonds, and I think they have also been written down.
Far from the Swiss government pulling a bait and switch, the point of AT1 bond is to have privatized safety net like how it is being used.
I’m never sure if news about China’s upcoming economic problems is written because such an event is actually coming or if the media writes it just for the clicks.
No one else can be certain either. It's always very difficult to tell whether the numbers coming out of China are real and how "real" certain markets are.
But personally I wouldn't buy into the "China is doomed" narratives that the internet loves to bring up yearly. Reality is usually far more boring and the issues (especially central gov ones) are usually far more deep rooted and survive long term like cockroaches.
Regardless the article links to some major long term worries in China's real estate which account for 30% of their assets. The number of defaults is declining but the housing market is still in a major slump:
China has been tipped to fail any time now for the last 25 years. They have long term issues but they will play out over long term results. A whimper rather than a boom!
I see China in 2023 where Japan was in 1991. Real Estate is falling apart. But in the end, the are the workbench of the world. They have Billions of people that can potentially work. Some of them are well educated and highly industrious. Japan survived so will China.
I mean economic crashes rarely cause a country to "die", but it will have a major setback in its economy and the individual people will suffer, if they aren't already. I mean I know lots of people are suffering in the west as well, despite there being plenty of jobs available and the economy being very good.
In the 80s Americans were worried that Japan would leave them in the dust, yet they've had 30 years with almost no economic growth. Not exactly a great roadmap for China to follow. https://en.wikipedia.org/wiki/Lost_Decades
In 1980, Japan had a huge population boom in the 35-45 age range, of energetic people who had grown up during a golden age of technological and economic development. Then they were hit by a demographic timebomb...
By 2060 Japanese children will be in the low single-digit millions, maybe 1/3 of the number when the experienced workers of the 80s were kids in the 1960s. There is literally nothing that can prevent it except mass immigration on a scale that would totally transform Japanese society (and which consequently will never happen).
China has the same demographic timebomb. China's peak labor was like in early 2010s I believe. Their birth rate has been declining the last few decades.
It is so laughable to the extent that many Chinese argue that those journalists and writers are paid by the CCP to brainwash the west to let people believe that China is not a real threat as it faces so many internal struggles. ;)
I think it's pretty clear by this point that it's like an extreme slow motion train crash.
In a free economy China would probably have had a proper crash and perhaps even a rebound by now. But China is doing everything that can to prevent a crash that can be blamed on the government, but the problems are so fundamental that they're just postponing a full crash - one that will probably end up being much worse - instead of fixing the root problems.
A decade ago you could say that the people predicting China's economic crash didn't have anything concrete to support their arguments. Things seemed to be going well. Now there's many real tangible signs of deep economic problems. Youth unemployment, buildings not being finished, banks failing, .. It's probably even more telling that China's government is stopping reporting of relevant data. Not that they were super reliable to begin with.
China probably won't crash in the way USA's economy crash. But that's kind of the problem. A crash is essentially a rapid correction of the economy. China won't allow that. Which puts them on the path of serious long term stagnation.
Companies open regional HQs all the time and they register corporations in those countries. Those are still technically independent legal entities with their own financial paperwork.
Bankruptcy is just you admitting to the court/gov you're not going to pay your creditors, and you're ready to face the legal consequence (like reconstruction).
They filed bankruptcy in Manhattan because they are not going to pay their creditors in the US. That's it.
I read the question as it implies Evergrande is not a "China's property giant", which it definitely is. But I might read it wrong. I'll edit out my condescending tone.
They filed in Manhattan in particular for very good reason - the venue is extremely good at huge, complex bankruptcies like this. It's non-trivial to unwind these financial obligations, and is really only done in NYC.
Because the people who lent money to Evergrande did so on condition that the deal was subject to the US’, and specifically New York’s, courts. Presumably because they trusted New York courts more than China’s courts in the event of a conflict.
I am sure there are court fees and whatnot, but more importantly, a significant portion of the tax base in New York State and New York City comes from having a well developed and functioning legal/judicial/financial system, including the people working within it to produce predictable and “fair” results.
I put fair in quotes because even though it is obviously subjective, clearly many entities around the world, including China, or investors of Evergrande, however commingled they may be, or whoever else around the world, find it “fair” enough to seek these services in this jurisdiction.
This is actually a great question! The United States bankruptcy court in the Southern District of New York is the best equipped place to manage a massive bankruptcy, likely on Earth. Every complex case you've heard of is managed there. It's a huge reason for NYC's success, and they know what they're doing.
If you need to wind down your car dealership, do it in Guangzhou or Monterry or wherever you happen to be. If you need to unwind GM or Enron, you'll do it in the Southern District Court.
This isn't necessarily super bad in its own right even though it is a very large company and it signals that some of China's big developers are under water. The question is whether it is a harbinger or the whole of it. If the former there will be a domino effect just like what happened in 2008, but hopefully more limited to China. I imagine that 'heads will roll' is more than just a figurative expression here, Xi & co will do everything they can to lay the blame with others even though this clearly happened on their watch and is a failure of oversight as much as incompetence at Evergrande.
China real estate is a subject you could write several books on (and it probably has been done) it is a series of houses of cards that are all precariously balanced against each other and that is why the fall-out from this could be substantial.
It will be an interesting number of weeks, the larger questions that will determine some of the outcome are:
Who holds the debt?
Which other companies are overextended in the same way?
What will Xi & co do to deflect blame?
Are the assets valued fairly or are the worth much less in a sale than their book value?
(the bigger the discrepancy the larger the effect will be, for a giant of this size to fall over would have to result in a significant effect on the market)
This could be everything between 'meh' and 'there goes the house' and I have no idea how you'd get to reliable information from inside China to get those questions answered.
People associated with Evergrande are very screwed.
Yes, the people who bought unfinished homes are screwed, too, and there's more of them.
But the whole entire country is screwed when their housing bubble pops.
This happened just 15 years ago with 2008 in the US. China and the CCP aren't particularly extraordinary. And they definitely didn't invent incompetence and greed...
Clearly the three red lines failed (as they were wont to do, they were too little and too late). So now someone needs to be blamed. There is no way that the Xi government will accept that they are in part culpable here (besides, there is no way in which the population could vote him out or that the government could fall, such as would happen in functioning democracies).
I think long term we are going to find out economics is more religion than science.
What is good for the macro (Spending on consumables during a recession) isnt good for the micro.
Hording assets that hedge fiat currency is good for the micro, but not good for the macro.
CPI/real inflation wasn't averaging 2% for the last 30 years, but probably was like 3-4%. Technology and out sourcing kept CPI looking like it was 2% + some gaming by each administration.
The 200$ billion hole in CN real estate is comparable in size to the SVB signature US banking crisis. In that case US treasury policy was a bailout for uninsured depositors who are wealthy supporters of the ruling blue party.
Most of the underwater property developers are wealthy patrons of the ruling red party in China and will ultimately receive similar government bailouts. Privatized gains and socialized losses it's the same movie everywhere.
But this is just theatre, on the order of 1 trillion disappearing in smoke is not going to sink the ship of any nation with 100 trillion in wealth assets.
edit: I should say this money doesn't really disappear in smoke, it's bourne on the backs of mostly middle classes amortization over the period of decades in hidden inflation taxes and marginal lower living standards.
The whole financial and taxation systems are engineered to reward owners of wealth and discipline laborers. The outcomes are pre-defined. I thought this was pretty well understood.
This isn't their only problem though. Local Government Financing Vehicles are also having trouble servicing their debts - the only way they make money is leasing out land but the real estate sector had imploded. One of their biggest lenders, Zhongrong International Trust Co. also just failed to make payments.
local and provicial governments really dont matter. they do their best to support and bid projects for national champions and siting direct foreign investments where competitive. the areas which outperform (do least bad) have their executive talent siphoned to the central government. as FDI has dried up in the global slowdown restructuring and local reforms are due. one idea is to heavily lean on consumption which is palatable to some. i dont see that the chinese (or the japanese) feel that is a tenable path however
> local and provicial governments really dont matter.
Local governments are broke though and their LGFVs owe people a lot of money and can't pay.
The central government I believe is bailing them out - handing out longer term loans to kick the can down the road. It's still a strain on their financial resources.
Corporate socialism is much like communism. Both have in common a ruling caste that benefits from exploting the masses. Which is why we need something better than communism or capitalism. I am curious as to why we seem to have stalled political innovation. Are we stuck with variations of these concepts for the next couple milenia?
It's not over but it certainly slowed down. If you think it hasn't can you point out any meaningful innovation? Other than leveraging llms to improve last century tactics and ideologies?
For sure political innovation is a terribly slow process. I don't believe leveraging LLMs will have a direct observable effect on that until civilization <> AI digests for little while longer. Yes we could certainly discuss AI governance (governance by AI)
There are two other areas you would seem to point at. Firstly other technological innovation will have momentous effects, I will not name the buzzwords but you easily know from what by excluding AI/LLM. The second and far more interesting is what I will call political innovation which is orthogonal to technological development, which is totally driven by changes in consciousness. I think that often looks like a stepfunction, because I hardly see the needle moving there outside the generation-to-generation cultural noise.
My understanding is that lots of families invested their life savings into either having no apartments on paper or half-finished ones or some close to completion but unlivable.
Social unrest or govt bailout ???.
Who is holding the can for this one - Western investors ???.
How can a declining population selling mostly commoditized goods support ever increasing property prices, that too when property is already overleveraged!!
This crash was always on the cards. Just a matter of when, and the when may have finally arrived.
> How can a declining population selling mostly commoditized goods support ever increasing property prices
It's pretty simple.
If you believed China was going to keep growing at 10% per year indefinitely - then the property prices were a bargain.
I think you needed to be mathematically challenged to believe that, but a lot of people did, or at least thought everyone else just assumed it would happen and they could get in and out before anything bad happened.
You also have to realize it wasn't foreign investment, and the Chinese are astoundingly nationalistic.
It was more like there was no alternative. Capital controls prevent regular Chinese investors (those without special Party connections) from taking their money out of the country. The domestic stock market is a joke. Banks pay low interest rates. So, the only thing they can do with their money is speculate in residential real estate.
The stock market in China is likely to look better than the property market when it implodes on leverage, and definitely bonds and savings.
People didn't want to miss out. That's it.
You're not going to buy a house on 3:1 leverage if you think it's overpriced by 30% just because you think the stock market is overpriced by 50%. You'd just keep your cash in savings.
The problem is - they believed it would keep going up - because it had been for almost everyone's entire adult life.
The Chinese government's approach to dealing with failing real-estate companies, including Evergrande, is distinct from typical Western bailouts. In China, the strategy often involves allowing such companies to default in a controlled manner. Given that the major lenders and banks are state-owned , this essentially means that the government bears the loss through these institutions (what else can happen anyway??) . Asset management companies are then allowed to bid for any remaining valuable assets of the failed company. The state government has also issued directives to local governments, ensuring they take responsibility for the completion of housing projects for homebuyers.
It's clear that there have been instances of questionable financial maneuvering by individuals behind these real estate companies, involving substantial sums of money being moved out of China through various, potentially illicit means. In Evergrande's case, critics point to dubious ventures, such as an automotive business that never produced cars, as potential vehicles for siphoning money to overseas entities. Additionally, the issuance of USD-denominated bonds—often purchased by shareholders—is another strategy that has been scrutinized.
To address these challenges, the Chinese government has enforced exit bans and placed these individuals under strict supervision. They are often required to return these funds to China, potentially under threat of reduced prison sentences. This sounds not right... but yeah... it is China. And China does not have other means to use like US to extradite fugitives or request the money back even it got all the evidence... exit-ban and blackmailing are the only way China can go...
As for Evergrande, while it's severely distressed, it continues to operate, largely as a 'zombie' company under state guidance, to resolve as much of its outstanding debt and obligations as possible. A full government bailout, in the Western sense, does not appear to be on the table.
Regarding the broader crisis, I feel the situation is largely controllable due to the extensive tools at the disposal of the Chinese government. It's almost certain that the authorities have already devised a comprehensive plan and roadmap to navigate this crisis 1-2 years ago...
To address these challenges, the Chinese government has enforced exit bans and placed these individuals under strict supervision. They are often required to return these funds to China, potentially under threat of reduced prison sentences. This sounds not right... but yeah... it is China. And China does not have other means to use like US to extradite fugitives or request the money back even it got all the evidence... exit-ban and blackmailing are the only way China can go...
This doesn’t sound so unreasonable to me. These guys knew what game they were playing. They could have not tried to scam the Chinese government in order to build a foreign fortune and live abroad as kleptocrats.
Exactly, I was about to say the same. I find it a very good idea to hold executives personally accountable for mismanagement.
I'm not a great fan of Chinese politics but the rest of the world could learn something from China here. (remember the credit crisis anyone?)
To me, the use of exit bans and coercive measures to bring fugitives back to China does not seem unreasonable under specific circumstances. While employing these tactics for political reasons would be problematic, they serve as some of the only tools available to the Chinese government to act against corruption and embezzlement. These measures provide leverage and serve as a deterrent to prevent corrupt officials from fleeing China with substantial illicit gains [0].
This approach is not a secret; it is well-publicized within China and internationally. For example, the BBC reported on China's "Fox Hunt" operation in 2014, although the tone of the reporting has notably changed over time [1][2].
Despite China's extensive global connections, it faces significant legal constraints in its efforts to establish extradition treaties with major countries. Given the current international political climate, the prospects of forming such treaties appear to be minimal. In this context, what other options does China have at its disposal to combat corruption and hold individuals accountable?
The other option that China has at its disposal is to introduce multiparty democracy with the rule of law and guarantees of civil rights. Most other countries would then be happy to extradite suspects to China.
If someone had the means and opportunity to make a clean break with PRC but instead choose to not only stay but work extensively and successfully, at least for a while, with the government—-well that guy seems like part of the problem.
Innocent in what sense? In China it's not always enough to not break a law to be innocent. You might also have to act in the spirit of the law (as interpreted by the CCP) to be sure to not become the target of the justice system.
This is very different from the western system. But I think most people would agree that sometimes complete "rule of law" can also lead to perverse outcomes where very immoral business behaviours go unpunished.
I think this misses half of the purpose of 'rule of law'. Some laws are to protect interest of citizens in the state and the state itself, sure, and in that sense the importance of 'spirit of the law' could be cultural. But the other aspect of law is minimizing surprise. Efficiency of commerce depends on a certain amount of consistency around laws. The more consistent the interpretation around a body of laws the more efficiently commerce can occur. In this sense relying on 'spirit of law' is wildly unhelpful because in order to understand legal cause and effect you have to read tea leaves, understand the leaders in office, etc. The west is not immune to this problem but we depart from strict written law to our peril.
Minimizing surprise is definitely more efficient. However, preventing bad actors from abusing the system also makes for a more efficient system because it reduces incentives to do zero sum or even negative sum investments (such as causing harm to others to increase your own profit).
I don't think the question was about the interpretation and specifics of the law but about the ethics. Wether an action is not unreasonable is also a question wether the action is should be a valid option.
> In China it's not always enough to not break a law to be innocent. You might also have to act in the spirit of the law (as interpreted by the CCP) to be sure to not become the target of the justice system
So people that are family members and friends of fugitives are not acting in the spirit of the law and deserve to be punished?
Deserve doesn't factor into it. The world isn't fair.
When we declare war on some country most of us can't even find on the map, some barber in it who gets a Hellfire missile in his shop's window didn't 'deserve' it, but he still receives his share of collective punishment, because the ends justify the means.
Transparency would help out a lot. Allowing the press to actually investigate and report on things, and not trying to suppress information that allows corruption to thrive. Also, there are no power branch checks, the judicial branch is at the mercy of the official branch, and the legislative branch is just to rubber-stamp things. Unless you piss off an official more powerful than you, you can basically do whatever you want.
They also trade it in the market, and anyone who tried to raise warning bells early is censored. Andrew Left got banned from trading in HK in 2016 because he said the company was doomed. We’ve known for a long time that Evergrande was in serious trouble, that was 7 years ago, and the Chinese government’s solution was to look for suckers who would listen to them rather than look at the numbers.
The story that somehow the Chinese government tried to censor somebody in Hong Kong (pre-2019) for saying a non-state-owned-enterprise was doomed didn't seem quite right.
It looks like this Andrew Left claimed Evergrande was insolvent in *2012*. This seems more specific than "the company was doomed". I suspect the claims in 2012 was at least a bit of a hyperbole, since you'd have to hide it pretty well to keep being insolvent for 10 years. From what I read the trigger of the Evergrande blowup was over leveraged loans and a slowing property market, the situation would have been a bit different in 2012.
This seems like a case of "predicted the last 9 of the 5 recessions". I'm not sure a company blowing up 10 years after he said it was doomed is much vindication except to the extent that maybe it was really a crappy company after all.
Evergrande has been insolvent for a long time. The government kept patching it up, but anyone could tell just by looking at the data.
So you know, if the numbers say your debt is waaaaaay over your asset (they’ve been leveraged since 2008 or so, most Chinese real estate companies, just that Evergrande was exceptionally so), but the government keeps you alive for 10 years anyways, is the trader wrong or you know, the government.
Also, the reason the HK court gave for its judgement is not that Andrew Left lied or was touting fake numbers or anything like that, but the literal judgement is that “He had the right data but didn’t understand how the Chinese market was different from the West.”
It looks like Left's concerns were largely legitimate, but he wasn't familiar enough with the standard accounting and industry practices that the authorities were able to nitpick details he got wrong, and he probably used a bit of hyperbolic tone to describe the real concerns about the Chinese property market.
The problems with the Chinese property market isn't "accounting fraud" as alleged because everybody is doing it in the open, I guess.
I think Left's main "fault" was that he shorted the stock, triggered a small panic, and profited from the deal. I mean, that's market manipulation unless the allegations are true, and it really is unfortunate that when it comes to truth, it's more like "what I said might be technically wrong, but I'm telling the truth!"
> They are often required to return these funds to China, potentially under threat of reduced prison sentences. This sounds not right... but yeah... it is China. And China does not have other means to use like US to extradite fugitives or request the money back even it got all the evidence... exit-ban and blackmailing are the only way China can go...
How is this different from western governments? Can the state even blackmail a person? Isn't that just called a deal or leniency for cooperation with prosecutors/regulators? And isn't it fairly routine for people charged with fraud and embezzlement to be prevented from leaving the country, particularly if they are had moved assets to foreign countries?
I'm no communist party apologist, but using tools like surveillance, deals, and travel bans to recover proceeds of white collar crime doesn't seem so wrong to me.
It's not as if we're looking at a democratically run country where there is a failure of a private institution, there is absolutely no way that you can run something at the level of Evergrande without being 100% in bed with the authorities.
The hypocrisy is at a level that is hard to imagine, you're essentially looking at two arms of the same thing where the one is labeled 'Evergrande' and the other is labeled 'CCP' and the one arm made the other look bad so there will be reckoning. Looking at this through the lens of a Western democracy in terms of the crimes committed isn't going to help.
As I said, I'm not a CCP apologist, I know they do bad things and I wasn't trying to say the west is equivalent. I was purely asking about the things listed (plea / cooperation deals and monitoring and travel restrictions) which by themselves don't sound bad.
Their housing market was a ponzi scheme, in that they took money to build developments, but used that money to market new development. Local authorities got their cuts by rezoning areas.
Very little likely escaped the country. It's all in country fraud.
Where do you think those local authorities spent their money? They knew the local housing market was no good. Even the things that did get built were Tofu-dreg projects.
Real estate in Canada? Just the way it's outlined makes it sound like some foreign led fraud as opposed to a mostly home grown corrupt practices.
A similar thing happens in American suburbs where they expand cities with business malls and suburban development to enlarge the tax base but ignore O&M on infrastructure then sell more development to compensate.
But in china, they were selling development with ever building them because it became an investment vehicle.
> This sounds not right... but yeah... it is China. And China does not have other means to use like US to extradite fugitives or request the money back even it got all the evidence... exit-ban and blackmailing are the only way China can go...
That's horseshit. China is widely known to operate police/spies all over the world to forcibly repatriate people that it considers Chinese citizens against their will...in blatant violation of the laws of those countries.
The threat is "we'll come and get you, wherever you go, and if we have to nobody will ever hear from you again".
You are sharing the official written policy, but the reality on the ground is very different in China. Most business happens under the table. Corruption and bribes are commonplace in every transaction. Books are all fudged to a high degree. Millions of people who put up large deposits and made monthly payments for under construction houses to developers like Evergrande are never getting anything back, and laws aren't going to help them. The central government has a tight grasp on maintaining its control but not much else. That's just how things work in China.
I don't mean to burst your bubble, but... this picture of a "house of cards"-economy, with "swindles all the way down", riddled Swiss-cheese-style with corruption, while indeed a Western populist idyll visage of China these days (a sort of Western-denialists wet dream of impending Chinese doom), is inaccurate, and I think, dangerous for folks in the West to believe, if they truly hope to compete with "their biggest strategic adversary."
Surely there is corruption, failure and incompetence, but if it was on the scale that comments like this yearn for, China would look more like Cambodia, or Myanmar, or even Thailand, than China.
The simple truth is China would not have been able to achieve the scale of productivity and growth that it has (and if you doubt the scale, you must travel there in earnest, you will leave mind-expanded, if not fully blown), if it were truly like you merely wish it were. Sorry, but truth ain't always easy to hear.
It's copeium. The alternative is to admit that there could be another system, authoritarian, non-democratic, where there is no freedom, yet it's successful and have a chance to be the biggest economy in the world in a few decades. At this point, it's all about ideology.
It's completely copium. It's kind of dumb. Already the biggest in the world a few years ago by some metrics, but in GDP terms maybe 10 - 15 years. But the strange thing is that still so much room to grow beyond that. 5 to 6x times as many people as US, to achieve a comparable standard of living to US would produce a truly enormous economy.
I don't think China should be "world ruler" by any means (they're not ready and not international enough, and that Chinese culture is not respecting of other people enough at all, and that's not OK, but we can't expect them to develop themselves too quickly because they have a lot on their plate) but I think people should want China to be successful. To want them to be a giant failure is just dumb.
And smart people will be learning from China right now, not drinking copium while being a pendejo over China-crash-porn. It's all so ridiculous and sad. How can you say you're from "the best/ better" system if that's your reaction to a new contender? It makes you look like a bitter loser. Ugh...
Granted there will be downvotes to espousing this correct view, so part of the problem is people in the West need to work through their anger/fear issues on China before they can see it clearly. We're not there yet. And we can't hope to really compete until we can see it clearly, so...get to work people, do the inner work to have some clear sight!!
You appear to assume all of china's cities are either Tier1 or Tier5. That's not how it works in any country. Obviously, the higher tier cities look nice. But that doesn't apply to the entire country. You take one step into a lower tier city and you end up in what looks very similar to Indonesia or Malaysia.
That's not necessarily all the main government's fault either. The scale of the country means control is incredibly difficult. Which also happens to be part of the motivation behind the Social Credit Score that everyone brings up.
Honestly, it's actually quite surprising how similar the city tier dynamic appears to the relationship between Singapore/Malaysia/Indonesia.
Can you give some examples of these “lower tier” cities on the mainland? Also where would cities in Taiwan and Hong Kong occur on these scales? Also in the US, UK and Australia?
I thought I was treating it as an overall. I’m not sure I follow but it’s interesting. Anyway, the scale is massive and impressive. No?
You can find the Chinese city "tier" classification system on wikipedia. It's not an official scale, but used commonly due to just how massive and varied the country is. Looks like the scale I remember isn't the standard, since apparently the most common one is ~4 tiers.
As for why I brought up the generalization; corruption is variable within a country. Corruption in China is rife, in part because of the population size. I am fairly sure you have heard of Tofu Dreg construction. That kind of corruption is barely noticeable in cities close to administration centers. (Such as Tier 1 cities. It gets cracked down on very quickly) The same does not apply elsewhere.
I just don't want to be too unfair to china with this. Most countries have corruption outside of the major cities and administration centers.
It’s interesting we hear the terms “bail out” when connected with how the US managed major institutional collapse. However from what I experienced on the street during these “bail outs,” Lehman, Bear, SVB, First Republic no longer exist. Their assets were salvaged and remaining functional assets acquired. The fed, treasury, and other institutions involved in the bailout ended up making handsome profits from the reperformance of the distressed assets they pulled into their balance sheets.
The only bail out was for the global participants, not just banks but everyone with an asset that depends on the orderly function of the financial system even during periods of distress. “Tax payers” paid nothing, and benefited from the recovery from the disorderly Lehman collapse and the credit squeeze that caused. There’s a lot of speculation that the relatively mild inflation the US experienced post pandemic was due to all the QE and other moves the government and governmental bodies did, as well as pandemic stimulus. I’ve yet to see the effects clearly disentangled from the systemic breakdown of logistics during the pandemic which have only fairly recently ironed out. Certainly all the cheap cash caused some inflation, but what a small price to pay compared to what everyone faced.
I think the issue with the situation in China is the assets held by these investment vehicles are never going to reperform. They’re piles of paper and empty buildings rotting with no present or future purpose. They’ve sucked up immense amounts of public money passed through the system in various ways into fake investments, and their value will simply evaporate leaving behind a desperate situation - cities and town throughout China burdened with useless infrastructure. It’s been brewing since at least 2007. But it doesn’t start and end with real estate - there are enormous infrastructure projects and bad international loans sprawling the planet that under scrutiny won’t stand up. Chinese credit spreads, where they are priceable, will have to blow up, and where they aren’t the opaque risks will sew structural and systemic lack of confidence.
I hope China can navigate whatever unwinding has to happen, and I sincerely hope it doesn’t devolve into political and social instability fueling geopolitical strawman conflicts to distract from domestic problems. While I really wish China could find a way to let its people be actually free, I don’t think a multipolar world is necessarily a bad thing. An ascendant China as more than a factory floor for the west provides a good opportunity for trade and competition, spurring growth and innovation everywhere.
> There’s a lot of speculation that the relatively mild inflation the US experienced post pandemic was due to all the QE and other moves the government and governmental bodies did, as well as pandemic stimulus.
How would stimulus and QE help prevent inflation?
Can you point to someone doing that speculation?
I didn’t say it prevented inflation, I said inflation was mild given the amount of stimulus. IMO this is because as supply of money increased demand did too, and supply was sufficient to meet demand and the economy expanded rather than price inflation.
> Tax payers” paid nothing, and benefited from the recovery from the disorderly Lehman collapse and the credit squeeze that caused. There’s a lot of speculation that the relatively mild inflation the US experienced post pandemic was due to all the QE and other moves the government and governmental bodies did, as well as pandemic stimulus
This is completely wrong and naive, please let us know what agency you work for.
You say stuff like that with an references, for the record everytime the money printer is run the tax payers, aka bag holders, pay out the ass.
Saying the inflation is mild is not agreed with, where are you getting that from?
Let me be clear - the “bailouts” didn’t cost anything. They were never done with tax payer dollars, except for TARP, which was repaid in full plus interest.
> On December 19, 2014, the U.S. Treasury sold its remaining holdings of Ally Financial, essentially ending the program. Through the Treasury, the US Government actually booked $15.3 billion in profit, as it earned $441.7 billion on the $426.4 billion invested.[2][3]
Quantitative easing and other long term asset related balance sheet transfers materially reperformed as the assets were acquired during a stressed credit period and as credit improved the long term asset values increased, causing internal growth of the balance sheet value at the fed.
Additionally, the additional money supply contributed modestly towards inflation, but overall relieved enormous market pressures and allowed the economy to stay on stable footing:
> Several studies published in the aftermath of the crisis found that quantitative easing in the US has effectively contributed to lower long term interest rates on a variety of securities as well as lower credit risk. This boosted GDP growth and modestly increased inflation.[94][95][96][97][98][99]
To answer your question, I don’t work anywhere right now as I’m taking a break between gigs. But I did used to be a fairly senior person at the mega banks and was a senior person in securities trading during the financial crisis and navigated my bank through it successfully (albeit we were never distressed, but all banks were treated as distressed to prevent further runs). I have no skin in any of these things though, but am always surprised by the populist hot takes from folks so far removed from the system and what actually transpired in real reality that I often wonder how wildly diverged most folks view of reality is from the actual history that I literally saw unfold around me.
Oh I could tell you work in finance, that was obvious from the language usage and technical terminology.
I'm not going to write an essay to refute this, we shouldn't have to as the results are obvious, aka how's that Big Mac index doing on the 10y.
Do you know who Henry Duncan was, what his value prop was, and how/why it died?
The end game was inevitable, and very senior people were ignored in the 80s when the flaws where pointed out.
What you have stated here, I would argue it is the perception people have of what transpired, you saved the banks but are you really saying there was no cost, and if so where did the value generation come from and at who's expense?
We are talking about different points of view, and I do realize what I'm saying can be viewed as a critique of your value, and many more like you, however I'm not.
I understand, and agree with you, that like yourself many many people have been doing amazing work to keep the financial networks flowing.
The critique is with erosion of purchasing power of our store of value, the average person is not a wall street guy and didn't understand that Henry's value prop died in 1971 and how to store value completely changed.
| but am always surprised by the populist hot takes from folks so far removed from the system
Why are you surprised, serious question. The system isn't straight forward and there are elements that are just straight up dishonest, and unless you work in the industry you won't really understand all these things.
I would argue that the networks are designed this way now, versus how they used to work and this is where people's understanding of how it's supposed work, and the disconnect you see, derives from.
> Given that the major lenders and banks are state-owned , this essentially means that the government bears the loss through these institutions (what else can happen anyway??) .
All major banks ( 'too big to fail' ) are state owned. The only difference between china and the US is that china's state also directly runs the government whereas our state hires out the running of the government to popular clowns. It's essentially the difference between owner operated business vs employee run business. But fundamentally, it's the same thing.
> To address these challenges, the Chinese government has enforced exit bans and placed these individuals under strict supervision. They are often required to return these funds to China, potentially under threat of reduced prison sentences. This sounds not right... but yeah... it is China.
What is so special about china here? 'Exit bans' exist everywhere. If you commit serious financial crime and are deemed a flight-risk, your passport gets seized and you are banned from leaving the country. This happens in every country but for some reason when china does it, it's deemed 'special'. And getting a reduced sentence for cooperating with the government is the norm everywhere. If 4 people commit a crime, it's basic strategy of the prosecutor to offer 1 of the criminals immunity or reduced sentence to testify against everyone else. Once again, what's so special about china? It's amazing that basic standard legal process is consider special just because china does.
> A full government bailout, in the Western sense, does not appear to be on the table.
There is a full government bailout or not. Nothing 'western' about it as if there is a common 'western' strategy about anything. Governments all over the world do full bailouts, controlled or strategic defaults or stay out of the issue depending on the severity and systemic importance of the situation.
Your faith in your government is commendable. But doesn't China indeed have ways to rendition fugitives? There have been some legitimate cases, so I don't know what you're talking about when you say it can't do so.
Also, this will probably come across as callous or obtuse, or even deceptive or arrogant, so I'm sorry, but, no offence, yet you do sound a little bit concerned with the present situation, and your optimism, while seemingly bullet-proof does come off a little bit forced. I only mention this because I'm curious if you are want to share more about the zeitgeist there...are people worried? Bullish? Uncertain?
China do have CIA-Gestapo-like agents operating abroad to kidnap those individuals. It is way more effective than the one used by Mossad or CIA. What we have heard of infamous Putin polonium was pale in comparisons to Chinese agents network. The closest to the strength and execution of these operations would be how NK dispensed the brother in Malaysia. CIA or FSB-KGB or Mossad cannot match how clean the ops carried out. Till today, vast majority still think it was done purely by NK and couldnt even pin down a single NK agent. While routinely, we get to know who did what on CiA/KGB/Mossad ops.
Fears about the Chinese real estate sector have been around for at least a decade. The amount of stuff that has been erected is just mind-boggling and unprecedented in human history. You cannot "rightsize" an exponential process.
But a spectacular bust to obliterate all speculative busts is not the deterministic outcome in this instance. The intermingling or state finances, state supported banks etc. is also a major characteristic of the Chinese system. In such a system you can push around and hide issues, redistribute the pain wherever it is politically acceptable and other such "conveniences".
One interesting question is whether the work-from-home behavioral change is further affecting the oversupply of commercial real estate in China as it does elsewhere...
Ya, housing is too small in general for that. If you work from home, it’s probably because you are drop shipping or doing your own business, but the office is needed. I never worked from home when working for Microsoft Beijing, although I would work from a cafe sometimes. My housing simply wasn’t good enough for WFH.
The intermingling or state finances, state supported banks etc. is also a major characteristic of the Chinese system. In such a system you can push around and hide issues, redistribute the pain wherever it is politically acceptable and other such "conveniences".
Japan famously has had decades of zombie conglomerates surviving despite insolvency. I don’t think state intermingling is necessary.
This video[1] was posted about 6 years ago but I think were starting to see the effects of the bubble they were talking about. In the video they said most new apartments were bought as investments as real estate is seen as one of the only "safe" investments in China. It would be one thing if most of these buildings were occupied by residents and only a percentage was investment properties but it sounds like there were many buildings in these new cities where practically every unit was an "investment property". The problem is these "investment properties" stop being investments when everyone has one.
When making a trade, being early is the same as being wrong [1]. You are right, the writing has been on the wall that eventually, the real estate pyramid scheme Chinese wealth is built on was going to crumble (the zeitgeist was that real estate was the path to wealth vs capital markets or other asset classes, and it was until it wasn't). We are only recently within sight of the event horizon, and there are no greater fools [2] left.
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[ 4.3 ms ] story [ 317 ms ] threadEdit: CCP imposing market restrictions causing average folks to invest only in real estate is not "Good ol' capitalism".
Meanwhile I will head to the market and barter some of my guns for butter.
vs
> Meanwhile I will head to the local apparatchik and request permission to barter some of my guns for butter while paying homage to dear leader.
Those are two distinct experiences.
But people want to assign a label to the category instead of the instance, and then they fight with people whose instance doesn't fit the label -- or whose instance does fit the label but they refuse to accept it because they assigned a different label to the category.
Yes, but each individual regulation that is contributing to this aggregate cost disease has varying degrees of value. Even if a specific regulation contributes +1 to the overall cost disease, it may also contribute +2 of positive value elsewhere that makes it net worthwhile, all things considered.
So we're back to where we started. Each distinct thing needs to be considered on its own merits without trying to automatically judge it based on what category it belongs to.
Aside from that, I could not agree more with your overall view. It's a good distillation of the broader concept of thinking things through from first principles. I don't want more or less regulations. I want more good regulations, and less bad regulations. In some areas (e.g. carbon emissions), I only want more regulations. In other areas (e.g. housing construction), I only want less regulations. I think these conclusions come from starting with the desired end goal (e.g. less pollution) and working backwards. Many people wrongly start with an ideology (e.g. regulations are good) and work forwards from that.
That's assuming they're not in competition for scarce resources, which they are.
For example, it's more efficient to do something with fewer people than to do the same thing with more people. Not just for the directly proportional efficiency reason, but because larger teams have higher coordination costs and management overhead, and will tend to increase average entity size leading to market consolidation which is very bad.
So you get a certain regulatory budget before your regulations induce the regulated entity to increase the size of the team. At which point your regulation that was contributing +1 cost to achieve +2 benefit would then contribute +25001 cost to achieve +2 benefit. (This is especially true for regulations that apply to small entities, because the cost of increasing the number of workers from 1 to 2 is drastic, often to the point of destroying the business.)
Which means you have to start throwing out regulations that in isolation have +1 cost and +2 benefit so you have the budget left for the regulations that have +1 cost and +10 benefit.
I tend to agree with the other commenters who are saying we need to look at the individual policies.
Which of course is impossible on the internet forums.
Leaded gasoline an issue when govt bans density leading to sprawl.
Leaded gasoline an issue when govt prohibits housing construction leading to sprawl.
Capitalism only imply that the capital owners decide what is produced, where, how, and how workers are treated/paid. It's in the name. In china's case, it isn't pure capitalism, it's a soviet-style capitalism (or a capitalist sovietism?) so I agree it isn't faire to reduce it to capitalism.
Good ol' capitalism strikes again. Real communism has never been tried. Yet again
https://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929
But any guess is good if that happens.
We can never run out of buyers!
An over simplification of Evergrande's issue two key issues are 1. Housing always goes up, but that alone is just a thought it needs an action. The action is 2. they used the sales of an unbuilt, future property to fund an existing, active project.
Again, a relatively common practice, but this is a form of leverage. It allows insane growth because you can start projects way before than you would normally. Of course they were levered up so hard that once the housing market cooled they couldn't sell future projects which then could not fund current ones etc etc.
While it sounds like a ponzi scheme, it's not since "if all the projects" completed then everyone who bought a house would have a house and all peoples would be happy.
you can saturate a market with houses way faster than pop out kids even at a modest growth 2.5x birth rate.
a bunch of middle class families had 3 or even 5 properties all with mortgages and so many of them weren't even built yet. who needs sustainability.
2 Most of the building boom was tofu dreg. We are talking from stuffing literal garbage from landfills into walls/foundations to using rebar that crumbles in your hand ending up with brand new buildings collapsing. Classic https://www.reuters.com/article/us-china-building-idUSTRE55Q...
And as a store of value I believe since they have nowhere else to invest their savings.
I got this insight in 2016 when the US started its suicidal trade and tech war with China which they claimed would be easy to win. It was never about money or trade it was all about keeping asians down and dependent.
Flattened? It's growing something like 5% per year.
If you believe you are right and the market is wrong, you should short-sell CDS'es and get rich.
2. The Chinese economy is still growing more than most countries.
3. The US is clearly engaged in zero/negative sum economic warfare against China at the moment - for example read this article and the quoted views by admistration officials therein:
https://www.nytimes.com/2023/07/12/magazine/semiconductor-ch...
‘An Act of War’: Inside America’s Silicon Blockade Against China
Related: Do you think China can catch-up to developed world in fab tech? I do not. They are hopelessly behind.
As for China "catching up":
1. China is indeed far far behind the US-controlled West if the criteria is purely Chinese designed and manufactured semiconductors using purely Chinese designed and manufactured equipment.
2. The extreme nature of the US semiconductor blockade has surprised even me (and I was kinda expecting the worst).
However:
3. China is developing along a path already throtten by Western companies; far easier than developing on the leading edge.
4. The Chinese market (plus Russia, Iran whoever is on the US shit list) is massive. It can sponsor a lot of technological development.
In the end there is no magic in tech.
Whatever company is at the top seemingly untouchable is there because of a "natural monopoly" created by massive fixed cost and little marginal cost. History is full of tech companies that were at one point dominant but no longer is: Digital, Microsoft, Intel, Google ...
The companies that are used as chokeholds today: NVDIA, ASML, TSMC will at one point join that list. In fact using them as chokeholds probably makes it happen faster.
[0] https://en.wikipedia.org/wiki/List_of_Chinese_administrative...
You can look at Singapore or Ireland for another example. They have higher GDP per capita than the US, but a lot of it's due to multi-nationals storing IP in those countries, and funneling cash through for tax purposes. It's not GDP that gets converted to local wages.
And in the case of certain Chinese regions, if you have companies headquartered there (with multiple sites at satellite cities), GDP measures are going to assign national GDP to that one region, so again, it doesn't necessarily reflect local wages.
Thats way too much simplification. For starters there isn't a level playing field. Any Chinese company can start a company in the west but if a western company wants to start a company in China you can either start a "second class" entity (a WFOE) or if you want a level playing field with the locals you can use a joint venture but then a Chinese national must have 50+% stake in your business.
Just ask ARM what can happen if you go for a joint venture.
Didn't they drop that requirement last year?
Think about it, who determines what is a 'level playing field'? That's right, the US in this context. Every country has the right to determine it's own policies, and the US shouldn't have any say, and yet is applying pressure for it's own benefits.
The same goes when China insists on one-on-one bilateral country negotiations on the issue of the south china sea instead of multilateral negotiations.
Historically the number one country will always be putting pressure on potential the upstart countries, and Big countries will be big countries. The US especially is adapt at spinning up narratives, so calm down and take a look at the different perspectives.
Companies cannot use the court system in China to hold the government to account, the government is accountable only to itself.
This difference is irreconcilable.
You mean the rule of law that it imposes upon others that they didn't agree on? And they'll bring it up only when it's convenient.
I'll say it again: Big countries will be big countries.
Now that I've answered your question, do you believe the US hasn't had abuses of it's power in the decades it's been at the top? And if not, can you name an instance of it?
Not just a law but a constitution
There is no way in hell I (as a foreigner in China) will win an intellectual property dispute from a Chinese company in China.
Probably because of this. The US is allied to several prosperous Asian countries.
Japan's recent Stagflation has plenty of obvious internal causes. Blaming the west for that is some weird cope.
China is an expert at manipulating their currency and internal markets for global advantage. Countries reacting to China's top-down aggressive self interest in a global market is only logical. Other countries engaging in those markets aren't there for charity and nor is China.
I don't think it extends so far since it's the 80's but I can see why one would blame the US there. Around this time Japan was forced to do technology transfers to the US, to have minimum marketshare in japan for US cars and semiconductors, to have unfavorable monetary policy.
That smells equivalent to being a vassal at gunpoint. Of course European countries helped pressuring and it being the cold war japan did not have much developed (or allowed alternatives) for it's export based economy even if it did have an army, more independence and a more varied political landscape.
The USA is not happy about this [2]. Understandably, this affects American companies' business in the country. The USA is happy do take action in defense of its national security and its national industries, but fights back when other countries do the same.
[1]: https://www.neimagazine.com/news/newsfrench-government-wins-....
[2]: https://www.aljazeera.com/news/2023/1/6/whats-behind-the-ene...
A beacon of self determination and lack of foreign and imperial influence?
Oh, wait!
And being prosperous doesn't mean not being dependent.
Japan agreed to the Plaza accords
https://youtu.be/pU_yyadYgG8
Other Asian countries probably are going to be careful before signing up for something equivalent.
Please do list all the prosperous Chinese or Russian allies.
I'll wait.
Those people you tell, in writing, signed by your highest authorities: if your people start dying at the hands of another country, our people will start dying with them.
Talk is cheap.
China doesn't have friends.
https://en.wikipedia.org/wiki/Sino-North_Korean_Treaty_of_Fr...
Of course "talk is cheap" is an hyperbole, since there can be a lot of mutually beneficial agreements that don't involve military sacrifice
https://en.wikipedia.org/wiki/2001_Sino-Russian_Treaty_of_Fr...
https://en.wikipedia.org/wiki/Shanghai_Cooperation_Organisat...
This certainly plays in their interest. The USA's support for global trade and the economic prosperity of countries key in their trade network (like Japan, for example) are similar ventures. I'm not saying China is making countries as prosperous as itself, but it is certainly working to make being a Chinese ally economically attractive.
[1]: https://www.voanews.com/a/china-cancels-23-loans-to-africa-a...
[2]: https://thefinancialexpress.com.bd/views/opinions/chinas-eff...
Nota bene, I'm convinced the US is spying. It's just what China is doing in terms of spying and forced industrial transfer makes the US stuff look kiddie play.
I'd say we're still tied, personally. Arizona and mainland China are both getting a TSMC plant.
Why?
The US just brain drains countries.
Given China's rise and size, US Asian hegemonial interests primarily trend towards making any not-China country in the region as economically strong as possible.
China killed itself off with its own policy of ‘for every two of us there should be one of us’.
Now their work force is shrinking and costs are rising fast. They aren’t competitive and the future is with India and Africa.
Another alternative is for the real estate trust to sell new shares into the market and use the money to pay the bank, or pay the bank in new shares. That dilutes the existing shareholders but doesn't force a fire sale of the properties.
In Dutch, interest is actually called 'rente'.
It's China, the authorities will just say "no." and then jail anyone who asks again.
Whether thing backing the credit to the seller's checking account is a mortgage loan or the deed to the property likewise has no effect on the amount of cash in their vault.
Now, if everybody is selling every building at a large discount, that's a housing crash, and highly-leveraged real estate companies are toast. But that should only happen if there is a real estate bubble, in which case a market correction is ultimately necessary and the entities that buy at the peak of the market are supposed to lose their shirts.
What you want to do in that case is not to save them. They're done. What you want is to prevent a cascading failure into the rest of the economy.
As a result, nobody can sell. The only way to move any inventory is to dramatically slash the price. Everyone is doing this, so you gotta do it even more than the next guy (or just hold on to the property but what if you need the money/can't maintain the property?). I've heard of 2mn rmby apartments in beijing going for 100k
They might have some properties that are not collateral, but even selling those imposes a problem: in the current market, most likely they will be sold well below book value. This automatically devaluates the value of any other property which they would like to use in the future for collateral and it will make existing lenders very nervous as well.
They have hundreds of thousands of unfinished apartments, and no money to finish them.
And even if they could, no one wants to buy the unsold apartments.
The average person in China owns more housing than the average person in the US or the EU.
This, with house prices being roughly equal but incomes being 1/6th on average, and there being about ~2.5B unfinished sqft of space (~2 sqft per person), and a rapidly shrinking population.
You do the math. Houses have been in a massive bubble in China for a long time, on nearly the same level as the Japanese bubble.
Who knows if it's finally going to pop. But the writing definitely seems on the wall now.
Also, central bank's can print money, by definition. They can also buy debt issued by these companies to repay maturing debt. Then they can forgive this debt. Why would this harm "the assets of the middle and lower class"? The misunderstanding of monetary theory appears weak here.
It is the largest one of the Chinese real estate developers, but there are a couple others that might break through the 1T Yuan mark.
The other thing is that Evergrande sold mostly through presales so now there are all those paid for but unfinished apartment blocks.
The $90bn outstanding is $90bn in outstanding housing construction, not just abstract debts to banks which could be written off or bailed out. Citizens will need to continue paying their mortgages on houses that don't (and won't) exist, which will cause some civil disquiet. Construction companies are going to have a shortfall of $90bn worth of work in their pipelines, which will mean mass layoffs. Entire large towns will go unbuilt.
Evergrande isn't the only one in this situation, it looks like a handful of large house-builders also have these uncompleted backlogs being paid for with new orders. The collapse of one might prompt the collapse of the others. As house-buyers become less confident that their house will ever exist, they'll stop buying new stock. When they stop buying new stock, the other house-builders collapse under the burden of their backlog of construction projects.
Basically you can not have enough cash on hand to purchase the next piece of land for your development, but you want to always plan for the next step.
Developers compete with each other, so they will always take as much leverage as allowed, but the rules are adjustable by lenders. Lenders compete too, but they usually wind up backed by a central bank or other political entity, and that's the point at which changes can actually be made. Of course, there is no guarantee these changes won't create problems (Three Red Lines were a decade too late) but they can be made.
When the housing market is good, this scheme brings real estate costs down, because you can buy cheaper "not-yet-build" flats or houses, and the developer can seek funding without overpaying on the bank loans. But if the housing market tanks, the development freezes, and the first buyers take a loss. I don't know about China, but in some countries such obligations are mandatory insured from the default, so people can get at least some of their money back. In others buyers are left with a piece of land with unfinished building.
China lacks a safe financial system that the ordinary person can invest in, the way that an American can park funds in an index fund and expect a reasonable rate of return. (The Shanghai and Hong Kong indices are not as healthy as the general economy.) It also lacks generous pension schemes like those in Europe. So part of the reason this is so bad is because most Chinese citizens put their nest eggs in real estate, and now the bubble has popped.
The Chinese predisposition to invest in real property is much more cultural (and irrational) than what you suggest. The Chinese stock market is actually much more rational in this regard as for quite a while you could buy Chinese real estate stocks with pennies on the dollar, price to book ratios much less than one. Traders know the real estate bubble is going to burst sooner or later and the stock market priced this in. The real estate market which mostly consists of individual buyers didn't quite get the memo until recently.
Speaking personally, in Chinese circles, the social pressure buy an expensive apartment is honestly overwhelming, and it's not because people knew that the property market was a good investment, it was just something they thought a respectable person should do once they earned some money. Family members without any financial literacy kept thinking I was an idiot for holding FAANG stocks instead of buying an apartment. AFAICT I'm the only person in my social circle (including people who should have known better) that has avoided the recent property slump (in Hong Kong) by steadfastly refusing to enter the property market at its height a couple years ago. It's nice to not have people nagging me about it now.
I guess the word I was looking for to describe the Chinese financial system is 'immature.' It is unfortunately not uncommon for some Chinese firm to get delisted for accounting fraud or some other type of impropriety, so investing in the indexes is a worse idea than it is in many other countries. And then there's all the marketing of dubious financial products that people inevitably lose their savings on and protest; before people swarming the Evergrande HQ demanding their money it was P2P lending and many other scams.
Note that this is the book value. Probably based on some valuation from years ago and only minimally adjusted, mean while property prices have crashed.
For instance: why not make the investors whole again instead by giving them the "printed money" instead of going through the middle-man of propping up these failed giants?
Through out history when it gets time for the Kings & Queens to waive the debt of the plebs away, cause they have nothing left to pay, the Rentier classes take the haircut.
In the US the rentiers have owned the Kings & Queens for a long time. To the point where any American institution cant touch them. This is not the case in China. There will be mass disappearances and cullings (already have been).
So far we can't see CCP making this mistake - which sort of confirms that Party has a healthy self-preservation instinct. Let's say, they are trying to do everything to avoid collapse of real estate prices because that will hit retirement savings of too many people, and they seem to accept lower rates of economic growth if that will be necessary to achieve that.
Human history has shown us that whomever controls the army usually wins.
Now, in the post-industrial era, we have a third threat. Extinction. And China may actually combine all three.
Money is the force of reason, ignoring it comes at one's own peril regardless of the force one controls: it means going against common sense that established itself through the power of competition, in favour of some arbitrary political theory or just someone's wits. Even if it succeeds for a while, it always reduces overall quality of the system and increases it's vulnerability.
Making payroll is never an issue for a sovereign that controls a central bank that controls their own currency. You're completely missing the point, because you're thinking in terms of money. A country isn't a business, or a household, it doesn't budget in the way you think.
> Money is the force of reason, ignoring it comes at one's own peril regardless of the force one controls:
Money is a floating-value paper proxy for material wealth. When there's a shortage of material prosperity - when people aren't building stuff, that's when you get a problem. Your position has just as many ideological blinders on as the one you think you are making arguments against.
The USSR collapsed because it failed to provide material prosperity. China, by any metric you could measure, is wildly succeeding at providing that material prosperity. That is what the party is focused on, because that's what's going to keep them in power.
You have to have bases of power, who are compensated and secured.
It's less stable, but doable with the right mix of alternatives, to ignore "the people" as one of those bases of power.
Soviet Union has collapsed while having whole lot more economic power and raw output of just about every industry, and was much more up to date technologically, but it deprived people of their basic instinct: to save and invest money and grow rich. Today's Russia allows and encourages that. Moreover, it even allows people say, to blatantly ignore taxes on all levels (i know people who make millions bucks per year in Russia and they don't know what tax number is, receiving and spending money through the banks in the open - and banks even help then when they need to make that money look legit abroad). As long as you don't try to oppose the great Pu or mess with politics overall, the regime has nothing against people enriching themselves - so the support base is rock solid and need for violence to maintain internal order is next to nonexistent.
Russia isn't democratic, but it is capitalist in the sense: you can own capital and government wants you to, and sees people who have capital as by default more well-behaved and loyal than those who don't. The sickest shit Putin may say on TV is shrugged by those people as "Pu just wants to make those peasants happy", and they may be even right.
Your description of Russia seems accurate, ~1995 to ~2010.
However, policies appear to be changing into tighter, more direct state control of oligarchs, in an effort to ensure civil stability.
Additionally, Putin is now 70... which is getting to the age that more laissez faire dictators turn increasingly autocratic in response to any external disturbances of their social control.
At some age and tiredness, it seems like the blunt approach trumps finessing a solution between multiple competing interests.
And... not to put too fine a point on it, but Putin did just survive a coup attempt, which wouldn't have launched if there weren't some support for it among the myriad power brokers in Russia.
They don't have voting power.
They don't have demonstration power.
They don't have access to broadcast their free speech via mass media.
Short of outright rioting, there's little they can do that matters to the Russian government.
Which means than in a trade-off between {what the people want} and {what those with power want}, the people are going to be ignored.
> (and even has no problem with them exporting that wealth abroad)
"...discuss reintroducing some capital controls to help prop up the struggling rouble."
https://www.theguardian.com/business/2023/aug/16/putin-meeti...
The Soviet Union pissed half of its economy away into its military, and the other half into its particular brand of waste, inefficiency, and corruption. It had a shortage of housing, basic consumer goods, and appliances - a shortage of material wealth, which became untenable by the time the fourth post-war decade rolled around, and everyone started wondering why the country has 12,000 nuclear warheads, but is still so goddamn poor.
If material wealth weren't the problem, or if Gorbachev didn't decide to stop imprisoning people for complaining about it, it would still be around today.
The world's three meals away from anarchy, if there were serious material shortages in the US today, nobody would give a crap about what monetary policy it follows, or whether or not you can save. King Bread is a ruler you swear fealty to, compared to him, King Dollar is something that comfortable philosophers build elaborate arguments for and temples to.
Are you aware of what happened to the landlords in China or do you mean the landlords weren't human?
Creating an all-encompassing historical 'rule' like 'money always wins' and then discounting evidence of a blatant counter-example is not generally a method that ends in good outcomes.
See: all major failed political movements based on an ideology that refused to adapt to conditions that did not line up with its dogma.
This is a fantasy.
The party has 98 million members
Folks join not for ideology but for the social standing and future career prospects - you not going to be a senior bureaucrat or military officer if you ain't a member.
The "leisure class" (of which many party members are part of) operate with impunity as long as they stay in the good graces of the party leadership.
You will only hear what the CCP wants you to hear. The rest of the "leisure class" flies under the radar.
Like in 2008, bankers made a killing selling toxic products and socialized all the losses when everything came crashing down.
Bankers lost their shirts in the whole thing - having to pay interest on those TARP loans or had to sell their shares to the government to get capital to survive.
https://en.m.wikipedia.org/wiki/List_of_banks_acquired_or_ba...
It is confusing why you say “use balance this way” because it is a “balance sheet”. You can’t pull the word balance out individually.
Bank crashing = money printing = asset values go back up. Can't lose.
If you buy real estate right before a housing crash, you immediately lose a lot of money vs. having just sold or not bought it, and even if the prices recover in the long term it can take years.
Meanwhile you can't refinance the loan at the new lower rates because you're underwater and no longer have the collateral for a loan that size.
Then there's the "risk" that people learned the lesson of the last housing crash and don't do the same thing, i.e. reinflate a housing bubble right after it pops. This wouldn't even have to be not lowering interest rates, it could just be lowering them but continuing the existing momentum behind relaxing zoning rules so the lower rates can fund new construction. Then the low rates save the rest of the economy but real estate prices stay reduced because the lower interest rates are offset by (and pay for) new construction.
You can definitely lose.
This bankruptcy happening and not causing a huge, devastating, world ending crash is a gigantic feature of the Chinese economy. Not a bug. It means asset values in China are deflating in a semi-controlled manner.
People love to complain about the banks that are "too big to fail". Now this huge company that should really be too big to fail is failing, and the world isn't ending. The only people who are upset that everything isn't tumbling down, are the ones hoping for the crash.
It doesn't feel like a "black swan" but some of these approaches to making money could be going away. Dropping interest rates and printing money requires a set of circumstances which aren't there.
Deflating those bubbles will destroy a lot of individual wealth, that is where it's going to get bumpy.
They do not look better. They look inflated and unaffordable. If not fixed this will have social consequences at some point and it won't be pretty.
By "unaffordable" people mean that median person/poor person has problem with paying for housing. Not that no one at all can afford it.
- Country garden, China's second biggest property company after Evergrande, missed a mere 22.5M payments for dollar denominated bonds. It is trying to restructure a $340B debt owned. https://abcnews.go.com/Business/wireStory/chinas-government-...
- Li Ka Shing, richest man in Hong Kong, just offered an immediate 30% off on his newest buildings for sale
- One of China's biggest shadow banks skipped payment. These shadow banks provide liquidity to real estate companies, in short. https://www.bloomberg.com/news/articles/2023-08-16/chinese-s...
Some economic related news from China:
- China stopped reporting youth unemployment, estimated around 20-50%. Which is why nobody really thinks China is growing at 5%. https://www.washingtonpost.com/world/2023/08/15/china-econom...
- foreign investment fell down 87% from the same period last year, lowest level in 25 years. https://www.bloomberg.com/news/articles/2023-08-07/china-for...
- China's fertility rate dropped to record low 1.09 in 2022 https://www.reuters.com/world/china/chinas-fertility-rate-dr...
- China records fewest marriages in more than 3 decades https://www.cnn.com/2023/06/12/china/china-marriages-record-...
- China's exports fell by 14.5% in July from a year ago, while imports dropped by 12.4% https://www.cnbc.com/2023/08/08/china-reports-double-digit-p...
- China's economy slipped into deflation https://www.bbc.com/news/business-66435870
That said, nobody is seriously claiming Chinese youth unemployment at 50% unless you are looking at something like labor force participation rate, which is then a similar number for the US as well.
China already tried its hardest to suppress youth unemployment rates. Student councillors in China are given strict KPIs to ensure their students graduate with a job. So obviously they co-operate with shady companies that give out sham employment contracts, and then pressure the student to sign, all to give out an impression of 'graduate employment'
China faces a severe crisis of over-education. China educated many university graduates, but has no industry to actually absorb them (Many such industries were crushed by the government, such as gaming, tech, or education).
China's factories desperately need cheap labour (and are starting to lose competitiveness because of this), but the over-educated grads are absolutely unwilling to go back to the factory floor like their parents. So you have millions of grads all dreaming of sitting in a prestigious office job, where none exists, so instead they all compete for government jobs, where there's 1 role for 100 applicants.
The Chinese government is already enforcing a streaming system in middle school, with at most 50% of students going to high school, rest going into technical education, but its too little too late.
How can there be a surplus of educated people who are unable to organize something profitable?
https://archive.ph/L6ZfU
read your own article, you also just made up the thing about the definition in the US
Talk about nominative determinism...
Wow, at this rate, they might just overtake South Korea for lowest birth and marriage rates within the decade.
They also forcibly 'immigrate' SEA women since 2010[0], forming a combo with the Gulf countries : the Gulf enslave the men under false promises, then cartels raid villages, capture and sell the women (Vietnam is the only country where the state is strong enough to limit that). Sadly is hard to investigate the issue correctly, given China's lack of transparency, but it is possible that despite relatively closed borders, China now lead the world in sex trafficking, overtaking the Magreb (morroco to lybia).
[0] https://www.hrw.org/news/2019/10/31/chinas-bride-trafficking...
Smaller rich countries can solve this problem by importing young workers from poor countries. But on China's scale of 1.5B people that's not really feasible. (China also isn't really that rich on average, isn't attractive for immigrants and isn't culturally welcoming to immigrants)
China has done fantastically well economically, and in terms of health care, education etc. There are other countries which have had strict population control and have done well economically - such as Singapore, South Korea. I see nothing wrong with poorer countries keeping restrictions on population growth - so that they can increase the standard of living and make sure everyone gets education and healthcare.
Of course you can also over build this capital that will never be used, but will need to be paid back (for example a local government pays to build a town that there are no people to fill it with) and the maintenance is too much, but you still have to look after the people who did the building.
That's is in no way sustainable on an individual level and worse on a societal level when you have a small working population and a large number of people that require care.
----
Fertility Rate of 2 (average age = 40): 100 80-year-olds, 100 60-year-olds, 100 40-year-olds, 100 20-year-olds, 100 newborns.
Fertility Rate of 1 (average age = 63): 100 80-year-olds, 50 60-year-olds, 25 40-year-olds, 12 20-year-olds, 6 newborns
Fertility rate of 0.5 (average age = 74): 100 80-year-olds, 25 60-year-olds, 6 40-year-olds, 1 20-year-olds, 0 newborns
----
You can also estimate the ongoing population rate of change for each fertility group by removing the elderly generation, adding a newborn generation, and contrasting the new population sizes:
----
Fertility Rate of 2: 500->500 = 0% population change per 20 years
Fertility Rate of 1: 193->96 = 50% population decline per 20 years
Fertility Rate of 0.5: 132->32 = 76% population decline per 20 years
----
In the developed world most fertility rates plummeted around 1970. So, assuming nothing radically changes, we should start hitting our 'equilibrium point' about one life expectancy away, so sometime around 2050.
The more likely explanation is Xi’s authoritarianism and crackdown on the private sector. Anyone with a brain in China is trying to get their money and themselves out of the country.
The fertility rate was 6 in 1970, it dropped to a half within a decade and then kept dropping rapidly.
That's not to say there isnt a big crackdown on just about everything right now. There is. Bankers forced to read xi jinping thought and write essays on it monthly etc.
It's so odd to me that of the many issues people freak out about, this one ranks relatively low. We're looking at a non-speculative and entirely real demographic collapse of the entire developed world, in quite rapid order. For those who may not appreciate the impact, a total fertility rate of "N" means you will trend towards a system where the population of one older generation will be "2/N" times larger than the next younger generation.
So if you have a fertility rate of 2, each generation will be exactly the same. If you have a fertility rate of 1 then each older generation will be exactly twice as large as the next younger generation. So, for a simple model, imagine we all gave birth at 20. You'd trend towards a population distribution of 16 80-year-olds, 8 60-year-olds, 4 40-year-olds, 2 20-year-olds, 1 newborn. Systems of social security, healthcare, and the general economy will just collapse under that sort of pressure.
[1] - https://www.statista.com/statistics/241530/birth-rate-by-fam...
Go to https://ourworldindata.org/fertility-rate and select some regions, see for yourself. Africa as a whole has declining fertility rates. Even if you look a high-growth countries such as Niger or Democratic Republic of Congo, the fertility rate has been declining in the last 20-30 years, and you'll be hard-pressed to find a country where it has gone up.
Maybe we could buttress them by all the 4x to 10x productivity gains that automation has brought us. [1] Maybe we could cut back on all the useless, extraneous, low-to-negative ROI shit we're doing. We have options, here, that don't require a population ponzi scheme.
(Also, you can't be blaming this situation in China on demographic collapse, when it allegedly has massive youth unemployment.)
[1] Remember, just a few decades, when somehow, a single working adult could comfortably provide for a whole family? Why can't he, anymore? What has changed? We are more productive per worker, we have more workers participating in the economy, but somehow, you think we can't provide for everyone.
If the expectation for quality of life for the vast majority is living off of 1 income household, then that is an acceptable quality of life. If that expectation for the vast majority changes to quality of life by living off of 2 income households, then a quality of life from a 1 income household is no longer sufficient.
Also, expectations of work itself change. It could be possible that a sufficiently large portion of the population is simply unwilling to change bedpans for a price close to what old people themselves can afford (even if the cost is implicit from getting services from a family member). In this case, it becomes a political issue of how to allocate labor, i.e. who to tax, how much to tax them, and who gets the benefits of government spending.
[1] - https://www.advisorperspectives.com/dshort/updates/2021/10/2...
In Thomas Piketty's Capital in the 21st Century, he argues that the period you're talking about is an anomaly historically due to the postwar boom of an unscathed US, that many people take as the historical norm due to recency bias; no one alive today was alive in the 1800s or earlier to see just how unequal life among the poor and rich was. He argues that this inequality is the norm rather than the exception for what is happening today.
I find the consumer price index 1775-2012 quite interesting. It's really easy to see how nearly everything listed there could be directly, and very likely causally, linked to giving the US government the power to start printing tens of trillions of dollars. Because that money invariably makes it to the most well off in society, even on the rare instance when it starts somewhat lower. If not one has to come up with an alternative explanation for what happened at that time, because it's like in 1971 that were just a button pressed saying, "start destroying socioeconomic stability."
[1] - https://wtfhappenedin1971.com/
[1] - https://fred.stlouisfed.org/series/A091RC1Q027SBEA
https://www.prb.org/resources/did-south-koreas-population-po...
[1] - https://en.wikipedia.org/wiki/Family_planning_in_Iran
https://www.cfr.org/article/china-increasingly-relies-import...
Japan still got to being a first world country, but then busted. China won’t get there.
https://books.google.com/ngrams/graph?content=first+world&ye...
The mean and median living some places might surprise you. For example visit HongKong, Singapore, Taipei, Tokyo, or a mainland city this millenium. Or dont'!
First world, it mostly conjures automobile culture and car infrastructure which is nothing special these days but check the world's largest car makers... you would guess Germany Japan or even the USA recently no?
It would be interesting to see the blast radius, specifically in terms of countries like Russia, which is becoming increasingly dependent on the yuan as it is exiting its relations with the West , huffing and puffing: https://carnegieendowment.org/politika/88926
Global economy is the blast radius. China is the biggest economy by trade so it’ll ripple through everything
The covid induced shortages like stock shortages, chip shortages, container shortage etc have already been dealt with and lots of companies have reduced their dependencies on china, etc…
youth unemployment data is just another toxic data that rarely used before in China and others just like "Total Debt" metrics that only used against China for some reason.
> China's economy slipped into deflation
Mainly caused by normalizing pork price, last year it went wild due to swine flu.
Seriously? One food can cause the entire economy to slip into deflation?
https://www.cnbc.com/2023/08/09/china-reports-smaller-than-e...
"A 26% year-on-year drop in pork prices, a staple food in China, contributed to the overall decline in the CPI in July"
The youth unemployment numbers are hard to judge, could be right but it is hard to tell on the outside.
The fertility figures are a long term issue, China is not alone in that but something to keep an eye on.
Those import/export figures... now that is the the most telling of how the economy is fairing nowadays. For all the speculation I have heard for decades, that is the most alarming stat I have seen. That is where the rubber meets the road for an economy that is so depended on those things to keep society function vaguely well. Stay tuned...
-> This also result in immediate sold-out with 22X over-subscription.
Bankruptcy law typically trumps virtually all other laws, with not much to guide the court's discretion.
International bankruptcies are even weirder. In this case, US bankruptcy law has the power to intervene in ongoing bankruptcy proceedings in Hong Kong, Cayman's, etc.
Bankruptcy law protects debt-holders and the company, but not other stakeholders. As far as I know under US law the court has no basis to change anything for reasons of economic policy or impact. If the Hong Kong court pushes mainland Chinese interests, it's unclear to me how the other courts would respond.
Further, the due diligence required to qualify debts and debt-holders could uncover some unsettling relationships. I can imagine China viewing US bankruptcy discovery as an fishing expedition for intelligence.
Huge amounts, even larger consequences, and super-power competition would make this difficult even if the law were programmatic, but here so much depends on the court's discretion, and the court itself is the finder of fact. ("So much depends/on the red wheel barrow"?)
In the US we're lucky that these proceedings are mostly in the open and on the record (albeit sometimes only to record the results of debt-holder negotiations).
Google defines AT1/CoCo bonds as:
More: https://www.investopedia.com/terms/c/contingentconvertible.a...BTW -- The writedown is incomplete. There are numerous court battles in numerous jurisdictions that may take 5-10 years to wind down. And, no, I don't think the Swiss Gov't will lose any of them. In the end, UBS will probably throw some pennies at these poor fools.
Far from the Swiss government pulling a bait and switch, the point of AT1 bond is to have privatized safety net like how it is being used.
But personally I wouldn't buy into the "China is doomed" narratives that the internet loves to bring up yearly. Reality is usually far more boring and the issues (especially central gov ones) are usually far more deep rooted and survive long term like cockroaches.
Regardless the article links to some major long term worries in China's real estate which account for 30% of their assets. The number of defaults is declining but the housing market is still in a major slump:
https://www.cnbc.com/2023/07/26/china-signals-more-support-f...
FWIW on Evergrande, I always find Patrick Boyle's channel educational and insightful. He has a few videos on the topic. https://www.youtube.com/watch?v=wXCpis_Mlwk&list=PLHC72UlhAt...
It's difficult to predict a dramatic crash, but it's much easier to detect an economy not doing well.
https://www.youtube.com/watch?v=jsO0JYu_5WI
https://www.youtube.com/watch?v=6HUrl1JwmJs
The question is: do average people matter?
It doesn't seems so.
https://www.nippon.com/en/in-depth/a01001/
By 2060 Japanese children will be in the low single-digit millions, maybe 1/3 of the number when the experienced workers of the 80s were kids in the 1960s. There is literally nothing that can prevent it except mass immigration on a scale that would totally transform Japanese society (and which consequently will never happen).
https://en.wikipedia.org/wiki/Gordon_G._Chang
his book is a great joy to read after 22 years.
https://en.wikipedia.org/wiki/The_Coming_Collapse_of_China
It is so laughable to the extent that many Chinese argue that those journalists and writers are paid by the CCP to brainwash the west to let people believe that China is not a real threat as it faces so many internal struggles. ;)
In a free economy China would probably have had a proper crash and perhaps even a rebound by now. But China is doing everything that can to prevent a crash that can be blamed on the government, but the problems are so fundamental that they're just postponing a full crash - one that will probably end up being much worse - instead of fixing the root problems.
A decade ago you could say that the people predicting China's economic crash didn't have anything concrete to support their arguments. Things seemed to be going well. Now there's many real tangible signs of deep economic problems. Youth unemployment, buildings not being finished, banks failing, .. It's probably even more telling that China's government is stopping reporting of relevant data. Not that they were super reliable to begin with.
China probably won't crash in the way USA's economy crash. But that's kind of the problem. A crash is essentially a rapid correction of the economy. China won't allow that. Which puts them on the path of serious long term stagnation.
If it is "China’s property giant" why does it "files for bankruptcy protection in Manhattan" ? Why not in China ?
They filed bankruptcy in Manhattan because they are not going to pay their creditors in the US. That's it.
https://en.wikipedia.org/wiki/United_States_Bankruptcy_Court...
I put fair in quotes because even though it is obviously subjective, clearly many entities around the world, including China, or investors of Evergrande, however commingled they may be, or whoever else around the world, find it “fair” enough to seek these services in this jurisdiction.
https://www.lexology.com/library/detail.aspx?g=e36cde01-e97b...
If you need to wind down your car dealership, do it in Guangzhou or Monterry or wherever you happen to be. If you need to unwind GM or Enron, you'll do it in the Southern District Court.
https://en.wikipedia.org/wiki/United_States_Bankruptcy_Court...
This broken clock is gonna be right sooner or later - even if I gotta wait til the heat death of the universe!
China real estate is a subject you could write several books on (and it probably has been done) it is a series of houses of cards that are all precariously balanced against each other and that is why the fall-out from this could be substantial.
It will be an interesting number of weeks, the larger questions that will determine some of the outcome are:
Who holds the debt?
Which other companies are overextended in the same way?
What will Xi & co do to deflect blame?
Are the assets valued fairly or are the worth much less in a sale than their book value? (the bigger the discrepancy the larger the effect will be, for a giant of this size to fall over would have to result in a significant effect on the market)
This could be everything between 'meh' and 'there goes the house' and I have no idea how you'd get to reliable information from inside China to get those questions answered.
Not the banks.
Evergrande sold homes that didn’t exist. People got loans from banks to buy those homes.
Citizens in China can’t file for bankruptcy. So even if they never get a home. They are in debt for life.
This is what you get living under the rule of the CCP.
Yes, the people who bought unfinished homes are screwed, too, and there's more of them.
But the whole entire country is screwed when their housing bubble pops.
This happened just 15 years ago with 2008 in the US. China and the CCP aren't particularly extraordinary. And they definitely didn't invent incompetence and greed...
What? All of their issues are explicitly done by Xi via the three red lines.
What is good for the macro (Spending on consumables during a recession) isnt good for the micro.
Hording assets that hedge fiat currency is good for the micro, but not good for the macro.
CPI/real inflation wasn't averaging 2% for the last 30 years, but probably was like 3-4%. Technology and out sourcing kept CPI looking like it was 2% + some gaming by each administration.
Most of the underwater property developers are wealthy patrons of the ruling red party in China and will ultimately receive similar government bailouts. Privatized gains and socialized losses it's the same movie everywhere.
But this is just theatre, on the order of 1 trillion disappearing in smoke is not going to sink the ship of any nation with 100 trillion in wealth assets.
edit: I should say this money doesn't really disappear in smoke, it's bourne on the backs of mostly middle classes amortization over the period of decades in hidden inflation taxes and marginal lower living standards.
Their economy seem to be swimming in bad debt.
Local governments are broke though and their LGFVs owe people a lot of money and can't pay.
The central government I believe is bailing them out - handing out longer term loans to kick the can down the road. It's still a strain on their financial resources.
There are two other areas you would seem to point at. Firstly other technological innovation will have momentous effects, I will not name the buzzwords but you easily know from what by excluding AI/LLM. The second and far more interesting is what I will call political innovation which is orthogonal to technological development, which is totally driven by changes in consciousness. I think that often looks like a stepfunction, because I hardly see the needle moving there outside the generation-to-generation cultural noise.
I really doubt that David Sachs, Peter Thiel, and other wealthy right-libertarian VC bros support the "blue party".
whats the practical influence of the libertarian in such environment? rules-for-thee; and looting
Social unrest or govt bailout ???.
Who is holding the can for this one - Western investors ???.
This crash was always on the cards. Just a matter of when, and the when may have finally arrived.
It's pretty simple.
If you believed China was going to keep growing at 10% per year indefinitely - then the property prices were a bargain.
I think you needed to be mathematically challenged to believe that, but a lot of people did, or at least thought everyone else just assumed it would happen and they could get in and out before anything bad happened.
You also have to realize it wasn't foreign investment, and the Chinese are astoundingly nationalistic.
Consequence of capital controls.
People didn't want to miss out. That's it.
You're not going to buy a house on 3:1 leverage if you think it's overpriced by 30% just because you think the stock market is overpriced by 50%. You'd just keep your cash in savings.
The problem is - they believed it would keep going up - because it had been for almost everyone's entire adult life.
It's clear that there have been instances of questionable financial maneuvering by individuals behind these real estate companies, involving substantial sums of money being moved out of China through various, potentially illicit means. In Evergrande's case, critics point to dubious ventures, such as an automotive business that never produced cars, as potential vehicles for siphoning money to overseas entities. Additionally, the issuance of USD-denominated bonds—often purchased by shareholders—is another strategy that has been scrutinized.
To address these challenges, the Chinese government has enforced exit bans and placed these individuals under strict supervision. They are often required to return these funds to China, potentially under threat of reduced prison sentences. This sounds not right... but yeah... it is China. And China does not have other means to use like US to extradite fugitives or request the money back even it got all the evidence... exit-ban and blackmailing are the only way China can go...
As for Evergrande, while it's severely distressed, it continues to operate, largely as a 'zombie' company under state guidance, to resolve as much of its outstanding debt and obligations as possible. A full government bailout, in the Western sense, does not appear to be on the table.
Regarding the broader crisis, I feel the situation is largely controllable due to the extensive tools at the disposal of the Chinese government. It's almost certain that the authorities have already devised a comprehensive plan and roadmap to navigate this crisis 1-2 years ago...
This doesn’t sound so unreasonable to me. These guys knew what game they were playing. They could have not tried to scam the Chinese government in order to build a foreign fortune and live abroad as kleptocrats.
This approach is not a secret; it is well-publicized within China and internationally. For example, the BBC reported on China's "Fox Hunt" operation in 2014, although the tone of the reporting has notably changed over time [1][2].
Despite China's extensive global connections, it faces significant legal constraints in its efforts to establish extradition treaties with major countries. Given the current international political climate, the prospects of forming such treaties appear to be minimal. In this context, what other options does China have at its disposal to combat corruption and hold individuals accountable?
[0] https://en.wikipedia.org/wiki/Operation_Fox_Hunt [1] https://www.bbc.co.uk/news/world-asia-30358060 [2] https://www.bbc.co.uk/news/uk-northern-ireland-65537553
This is very different from the western system. But I think most people would agree that sometimes complete "rule of law" can also lead to perverse outcomes where very immoral business behaviours go unpunished.
We are playing a game about people after all.
So people that are family members and friends of fugitives are not acting in the spirit of the law and deserve to be punished?
Deserve doesn't factor into it. The world isn't fair.
When we declare war on some country most of us can't even find on the map, some barber in it who gets a Hellfire missile in his shop's window didn't 'deserve' it, but he still receives his share of collective punishment, because the ends justify the means.
So I looked it up.
https://apps.sfc.hk/edistributionWeb/gateway/EN/news-and-ann...
It looks like this Andrew Left claimed Evergrande was insolvent in *2012*. This seems more specific than "the company was doomed". I suspect the claims in 2012 was at least a bit of a hyperbole, since you'd have to hide it pretty well to keep being insolvent for 10 years. From what I read the trigger of the Evergrande blowup was over leveraged loans and a slowing property market, the situation would have been a bit different in 2012.
This seems like a case of "predicted the last 9 of the 5 recessions". I'm not sure a company blowing up 10 years after he said it was doomed is much vindication except to the extent that maybe it was really a crappy company after all.
So you know, if the numbers say your debt is waaaaaay over your asset (they’ve been leveraged since 2008 or so, most Chinese real estate companies, just that Evergrande was exceptionally so), but the government keeps you alive for 10 years anyways, is the trader wrong or you know, the government.
It looks like Left's concerns were largely legitimate, but he wasn't familiar enough with the standard accounting and industry practices that the authorities were able to nitpick details he got wrong, and he probably used a bit of hyperbolic tone to describe the real concerns about the Chinese property market.
The problems with the Chinese property market isn't "accounting fraud" as alleged because everybody is doing it in the open, I guess.
I think Left's main "fault" was that he shorted the stock, triggered a small panic, and profited from the deal. I mean, that's market manipulation unless the allegations are true, and it really is unfortunate that when it comes to truth, it's more like "what I said might be technically wrong, but I'm telling the truth!"
If they were legally insolvent back then and his information forced them to immediately declare bankruptcy, this short would have been above board.
How is this different from western governments? Can the state even blackmail a person? Isn't that just called a deal or leniency for cooperation with prosecutors/regulators? And isn't it fairly routine for people charged with fraud and embezzlement to be prevented from leaving the country, particularly if they are had moved assets to foreign countries?
I'm no communist party apologist, but using tools like surveillance, deals, and travel bans to recover proceeds of white collar crime doesn't seem so wrong to me.
- execute people
https://www.bloomberg.com/news/articles/2021-01-29/china-fin...
- blackmail people by targeting the family members of those that have moved abroad aka collective punishment
https://www.economist.com/china/2023/02/14/how-chinas-police...
- are on the take themselves in a way that makes all of this other stuff look like peanuts
I take it that doesn't need a source link.
- make people disappear
https://www.bbc.com/news/business-64781986
It's not as if we're looking at a democratically run country where there is a failure of a private institution, there is absolutely no way that you can run something at the level of Evergrande without being 100% in bed with the authorities.
The hypocrisy is at a level that is hard to imagine, you're essentially looking at two arms of the same thing where the one is labeled 'Evergrande' and the other is labeled 'CCP' and the one arm made the other look bad so there will be reckoning. Looking at this through the lens of a Western democracy in terms of the crimes committed isn't going to help.
As I said, I'm not a CCP apologist, I know they do bad things and I wasn't trying to say the west is equivalent. I was purely asking about the things listed (plea / cooperation deals and monitoring and travel restrictions) which by themselves don't sound bad.
Very little likely escaped the country. It's all in country fraud.
The bought real estate in the US and Canada.
A similar thing happens in American suburbs where they expand cities with business malls and suburban development to enlarge the tax base but ignore O&M on infrastructure then sell more development to compensate.
But in china, they were selling development with ever building them because it became an investment vehicle.
That's horseshit. China is widely known to operate police/spies all over the world to forcibly repatriate people that it considers Chinese citizens against their will...in blatant violation of the laws of those countries.
The threat is "we'll come and get you, wherever you go, and if we have to nobody will ever hear from you again".
Surely there is corruption, failure and incompetence, but if it was on the scale that comments like this yearn for, China would look more like Cambodia, or Myanmar, or even Thailand, than China.
The simple truth is China would not have been able to achieve the scale of productivity and growth that it has (and if you doubt the scale, you must travel there in earnest, you will leave mind-expanded, if not fully blown), if it were truly like you merely wish it were. Sorry, but truth ain't always easy to hear.
It's copeium. The alternative is to admit that there could be another system, authoritarian, non-democratic, where there is no freedom, yet it's successful and have a chance to be the biggest economy in the world in a few decades. At this point, it's all about ideology.
I don't think China should be "world ruler" by any means (they're not ready and not international enough, and that Chinese culture is not respecting of other people enough at all, and that's not OK, but we can't expect them to develop themselves too quickly because they have a lot on their plate) but I think people should want China to be successful. To want them to be a giant failure is just dumb.
And smart people will be learning from China right now, not drinking copium while being a pendejo over China-crash-porn. It's all so ridiculous and sad. How can you say you're from "the best/ better" system if that's your reaction to a new contender? It makes you look like a bitter loser. Ugh...
Granted there will be downvotes to espousing this correct view, so part of the problem is people in the West need to work through their anger/fear issues on China before they can see it clearly. We're not there yet. And we can't hope to really compete until we can see it clearly, so...get to work people, do the inner work to have some clear sight!!
In plan economy, controlled corruption is a feature not a bug
Maybe the whole "VC industry" is essentially a form of "organized corruption" ha! sometimes I guess I think so... :) haha
That's not necessarily all the main government's fault either. The scale of the country means control is incredibly difficult. Which also happens to be part of the motivation behind the Social Credit Score that everyone brings up.
Honestly, it's actually quite surprising how similar the city tier dynamic appears to the relationship between Singapore/Malaysia/Indonesia.
I thought I was treating it as an overall. I’m not sure I follow but it’s interesting. Anyway, the scale is massive and impressive. No?
My point.
Thanks for chiming in three days later I guess
You can find the Chinese city "tier" classification system on wikipedia. It's not an official scale, but used commonly due to just how massive and varied the country is. Looks like the scale I remember isn't the standard, since apparently the most common one is ~4 tiers.
As for why I brought up the generalization; corruption is variable within a country. Corruption in China is rife, in part because of the population size. I am fairly sure you have heard of Tofu Dreg construction. That kind of corruption is barely noticeable in cities close to administration centers. (Such as Tier 1 cities. It gets cracked down on very quickly) The same does not apply elsewhere.
I just don't want to be too unfair to china with this. Most countries have corruption outside of the major cities and administration centers.
The only bail out was for the global participants, not just banks but everyone with an asset that depends on the orderly function of the financial system even during periods of distress. “Tax payers” paid nothing, and benefited from the recovery from the disorderly Lehman collapse and the credit squeeze that caused. There’s a lot of speculation that the relatively mild inflation the US experienced post pandemic was due to all the QE and other moves the government and governmental bodies did, as well as pandemic stimulus. I’ve yet to see the effects clearly disentangled from the systemic breakdown of logistics during the pandemic which have only fairly recently ironed out. Certainly all the cheap cash caused some inflation, but what a small price to pay compared to what everyone faced.
I think the issue with the situation in China is the assets held by these investment vehicles are never going to reperform. They’re piles of paper and empty buildings rotting with no present or future purpose. They’ve sucked up immense amounts of public money passed through the system in various ways into fake investments, and their value will simply evaporate leaving behind a desperate situation - cities and town throughout China burdened with useless infrastructure. It’s been brewing since at least 2007. But it doesn’t start and end with real estate - there are enormous infrastructure projects and bad international loans sprawling the planet that under scrutiny won’t stand up. Chinese credit spreads, where they are priceable, will have to blow up, and where they aren’t the opaque risks will sew structural and systemic lack of confidence.
I hope China can navigate whatever unwinding has to happen, and I sincerely hope it doesn’t devolve into political and social instability fueling geopolitical strawman conflicts to distract from domestic problems. While I really wish China could find a way to let its people be actually free, I don’t think a multipolar world is necessarily a bad thing. An ascendant China as more than a factory floor for the west provides a good opportunity for trade and competition, spurring growth and innovation everywhere.
How would stimulus and QE help prevent inflation? Can you point to someone doing that speculation?
This is completely wrong and naive, please let us know what agency you work for.
You say stuff like that with an references, for the record everytime the money printer is run the tax payers, aka bag holders, pay out the ass.
Saying the inflation is mild is not agreed with, where are you getting that from?
Let me be clear - the “bailouts” didn’t cost anything. They were never done with tax payer dollars, except for TARP, which was repaid in full plus interest.
> On December 19, 2014, the U.S. Treasury sold its remaining holdings of Ally Financial, essentially ending the program. Through the Treasury, the US Government actually booked $15.3 billion in profit, as it earned $441.7 billion on the $426.4 billion invested.[2][3]
https://en.m.wikipedia.org/wiki/Troubled_Asset_Relief_Progra...
Quantitative easing and other long term asset related balance sheet transfers materially reperformed as the assets were acquired during a stressed credit period and as credit improved the long term asset values increased, causing internal growth of the balance sheet value at the fed.
Additionally, the additional money supply contributed modestly towards inflation, but overall relieved enormous market pressures and allowed the economy to stay on stable footing:
> Several studies published in the aftermath of the crisis found that quantitative easing in the US has effectively contributed to lower long term interest rates on a variety of securities as well as lower credit risk. This boosted GDP growth and modestly increased inflation.[94][95][96][97][98][99]
https://en.m.wikipedia.org/wiki/Quantitative_easing
To answer your question, I don’t work anywhere right now as I’m taking a break between gigs. But I did used to be a fairly senior person at the mega banks and was a senior person in securities trading during the financial crisis and navigated my bank through it successfully (albeit we were never distressed, but all banks were treated as distressed to prevent further runs). I have no skin in any of these things though, but am always surprised by the populist hot takes from folks so far removed from the system and what actually transpired in real reality that I often wonder how wildly diverged most folks view of reality is from the actual history that I literally saw unfold around me.
I'm not going to write an essay to refute this, we shouldn't have to as the results are obvious, aka how's that Big Mac index doing on the 10y.
Do you know who Henry Duncan was, what his value prop was, and how/why it died?
The end game was inevitable, and very senior people were ignored in the 80s when the flaws where pointed out.
What you have stated here, I would argue it is the perception people have of what transpired, you saved the banks but are you really saying there was no cost, and if so where did the value generation come from and at who's expense?
We are talking about different points of view, and I do realize what I'm saying can be viewed as a critique of your value, and many more like you, however I'm not.
I understand, and agree with you, that like yourself many many people have been doing amazing work to keep the financial networks flowing.
The critique is with erosion of purchasing power of our store of value, the average person is not a wall street guy and didn't understand that Henry's value prop died in 1971 and how to store value completely changed.
| but am always surprised by the populist hot takes from folks so far removed from the system
Why are you surprised, serious question. The system isn't straight forward and there are elements that are just straight up dishonest, and unless you work in the industry you won't really understand all these things.
I would argue that the networks are designed this way now, versus how they used to work and this is where people's understanding of how it's supposed work, and the disconnect you see, derives from.
How is this different than the US? Where the treasury and/or Fed step in to oversee acquisitions and provide loan guarantees?
All major banks ( 'too big to fail' ) are state owned. The only difference between china and the US is that china's state also directly runs the government whereas our state hires out the running of the government to popular clowns. It's essentially the difference between owner operated business vs employee run business. But fundamentally, it's the same thing.
> To address these challenges, the Chinese government has enforced exit bans and placed these individuals under strict supervision. They are often required to return these funds to China, potentially under threat of reduced prison sentences. This sounds not right... but yeah... it is China.
What is so special about china here? 'Exit bans' exist everywhere. If you commit serious financial crime and are deemed a flight-risk, your passport gets seized and you are banned from leaving the country. This happens in every country but for some reason when china does it, it's deemed 'special'. And getting a reduced sentence for cooperating with the government is the norm everywhere. If 4 people commit a crime, it's basic strategy of the prosecutor to offer 1 of the criminals immunity or reduced sentence to testify against everyone else. Once again, what's so special about china? It's amazing that basic standard legal process is consider special just because china does.
> A full government bailout, in the Western sense, does not appear to be on the table.
There is a full government bailout or not. Nothing 'western' about it as if there is a common 'western' strategy about anything. Governments all over the world do full bailouts, controlled or strategic defaults or stay out of the issue depending on the severity and systemic importance of the situation.
Also, this will probably come across as callous or obtuse, or even deceptive or arrogant, so I'm sorry, but, no offence, yet you do sound a little bit concerned with the present situation, and your optimism, while seemingly bullet-proof does come off a little bit forced. I only mention this because I'm curious if you are want to share more about the zeitgeist there...are people worried? Bullish? Uncertain?
But a spectacular bust to obliterate all speculative busts is not the deterministic outcome in this instance. The intermingling or state finances, state supported banks etc. is also a major characteristic of the Chinese system. In such a system you can push around and hide issues, redistribute the pain wherever it is politically acceptable and other such "conveniences".
One interesting question is whether the work-from-home behavioral change is further affecting the oversupply of commercial real estate in China as it does elsewhere...
Japan famously has had decades of zombie conglomerates surviving despite insolvency. I don’t think state intermingling is necessary.
[1]: https://www.youtube.com/watch?v=BcyYyyaPz84
[1] https://news.ycombinator.com/item?id=27673627
[2] https://en.wikipedia.org/wiki/Greater_fool_theory
(ADVchina is a great channel btw, highly recommend the content if you're a remote scholar of Chinese macro)