China property bust article....

The ABC has an article on one of China's biggest developers teetering.

Now, to be fair, the media doesn't have a good track record on predicting this stuff, and China's government is powerful enough to simply not let it happen.

Still, it's worth a ponder. Anyone with Chinese connections have any insights?

@Sackie?

 

I have my doubts about a collapse of China property market.
Slow down and a small correction is most probable scenario.
You have to give it to the media to make headlines that catch our short span.
Why don't we talk about our own property bubble bursting?
Words on the street - 1 medium / large developer is in all sorts of trouble with their finance.
Won't take much to find out if you dig around.

 

China is different though...just in terms of scale. The company they're referring to apparently has 400 billion in debt....

That's big enough to cause a "few problems" down the line.

 

If the USA can do their magic for their "TOO BIG TO FAIL" company.
I am guessing CHINA can do their own magic for that.
We are living on the same planet?

 

Six years ago the CCP put a stop to the Shanghai stock market crash. One of the more high profile changes they made was to make it illegal for brokers to offload rubbish stocks

It's not hard to see from that how they could create a price floor if they wanted to

 

I would never bet against China. I have family in middle levels of government in China quite high up and from some of the general things I hear....I would never bet against China. They can pretty much do whatever they want. When they want. For as long as they want.

I have family in Wu Han when COVID-19 broke out. China was literally able to get hospitals up in 1 day. They commanded 10s of thousands of retired doctors and healthcare workers to report to duty. That's just the tip of it. They welded buildings closed. They had thousands of soldiers with heat detecting helmets patrolling the streets.

China's ability to mobilise what it needs to survive and thrive is unparalleled.

I would never bet against China.

 

Evergrande? lets just say its the only stock I've been shorting this FY. Its been on the cards for a long time now. They are wirecard2.0. They are likely to take the whole property market with them... BUT

THE Government will bail them out at some point. Helicopter money will come in 'hard and fast'. I expect Iron ore will head towards $400 EOY. Property prices will double in 2022.

 

They can let the company fall but that doesn't mean they will not sustain the industry and the market. I think to use the Western way of interpreting and understanding China is not always enlightening as @Sackie mentioned.

 

Chinese growth is dependent on land sales by local governments. Local governments fund huge infrastructure investment by selling land to developers. If developers go bust, then local governments will go bust and require bailing out by the central government. I remember reading that in 2011/2012 China consumed more cement in two years than America did in the last 100 years. Unsustainable. On top of that we have President Xi doing the opposite of what has made China successful from Deng on. He is embracing the political and economic philosophy of Mao rather than Deng. Who is going to tell President Xi that his economic policies are crap?

 

In its latest crackdown, China intensifies focus on real estate

 

As i like to say, China will be Japan 2.0.

Macro wise their demographics is now mirroring what happened to japan in their early 1990s asset bubble crash and subsequent struggle to get out of recession/deflation despite massive monetary stimulus.

Its almost impossible to have a growing GDP when your population growth is negative. China went from 1 child to 2 child(2016) and now this year 3 child policy. You can shut people in and quarantine and have curfews in the streests but you cant force people to make children. They wil have no choice but to scrap the child policy altogether very soon. I daresay their population growth now is likely gone negative if not flat with covid complicating matters.

So yes all the additional debt and what not its all unsustainable. But nature has a strange way of correcting things.

Its a race now between USA losing its dominance and the USD becoming useless and China having its economy implode due to a big property/asset bubble crash.

 

They have been fairly successful in forcing people not to have children. Quite against their will considering the period and preferences of Chinese families (1980+). I wouldn't be so sure they can't and won't do the opposite, through a combination of appeal to nationalism, incentives and punishment.

 

Like you have to submit evidence that you have been trying hard to have children, otherwise... you will be given "counter-contraceptive" measures

 

MSCI China vs. S&P500. China is down 30% on the crackdown. It's at 2018 levels.

If govt says no property and money is getting harder to move offshore, maybe it goes here. There is more money in China now than 3 years ago, no?

 

They havent stopped printing more money, debt levels have still been going up and up, thought at a slower pace compared to few years back.

 

Here a couple of facts about China:

1. China has huge issues economically...President Xi is hiding behind nationalism. He knows very well that once growth slows...the masses will get restless. This is why he is cracking down on inequalities as the gap between the wealthy and normal people is widening.

2. His crackdown on what large tech companies and other companies is going to cause issues downstream.

3. China has so much debt it is going down the path of of where Japan went and they have a demographic where people are ageing very rapidly this in itself will slow the economy. Just look at Japan. Only difference is China is not a fully developed country.

 

They also tried to pull through a bill that meant you could only own one parcel.

They are really trying to 'redistribute the wealth'

China & chinese people are all about flex. The old cliche. Fake it til you make it. I've never met a chinese person without a high ticketed item.

The next black swan event is the Winter Olympics in FEB. CBDC's are(likely) the next monetary system. What could go wrong.

 

@sash @LROB
Not sure if you have ever been to China for pleasure or business? I can tell you it is far complex than how you have describe it in those few paragraph.

Note: I had some view points on China in the past. I have travelled there and it has alter my view in more than 1 or 2 ways. Lessons I have experienced and I had to eat some humble pies a few times to say the least. Trust me it won't be the last I assure you.

 

China will be fine and thrive as its always done, give or take. Those who believe their property is heading for a major crash have no idea. I own property in a few major cities and my returns are better than anything ever achieved in Australia.

And the demand for major cities high demand areas is absolutely insane. The amount of rich folks in China is....staggering . The money coming into the country legally and through back channels is beyond staggering.

 

agreed - some of the 'simplistic' commentary I read on China is mind baffling! Comparisons with Japan are non sensical given the chalk and cheese nature of both populace, growth, resources, politics, culture, economy, median ages etc.

China does not have the headache of governance in the same way that western democracies have and their long term planning, resource allocations and absence of 'tyre kicking opposition' has allowed them to lift 800m people out of poverty over 25 years. It still has a very long way to go and those that repeat the mantra of 'just like japan... just like japan' very likely fail to understand the nuances around China, its policies and its economy.