I haven’t been updating every twist and turn of the Evergrande collapse, but we’re going to look at it again because this Peter Zeihan video has a fairly staggering statistic. He asserts that there are 1.5 BILLION (with a B) unoccupied housing units in China. Even though we already knew about the ghost cities, that’s like an entire ghost nation for a China that was already headed down the economic crapper.
“A Hong Kong court has ruled that China’s largest property development group, Evergrande, is bankrupt and needs to be broken up. This is something that the Chinese government has spent a lot of effort on the last two years not happening.”
“There’s two big things that dominate the Chinese economy. The first is something I call hyperfinancialization: The idea that the government both de facto confiscates the savings of the citizen population so it can only go into projects funded by Chinese State Banks, as well as massively expanding the money supply to a tune of like almost triple what we have here in the United States.”
“It’s a public stability political control approach to finance. It’s not about profit, it’s about throughput, because throughput requires a lot of bodies.”
“Number one, you get companies like Evergrande, who gorge on all this bottomless supply of debt to build build, build, build, build, even if there’s no demand.”
“Second, you get a population who knows that their private savings is almost worthless, because the Chinese government is forcing them to keep it in the state banks, and they want to put it into a hard asset that preferably the state can’t control. And if they can’t get their money out of the country, then the next best thing is a hard asset in the country, which typically is property.”
“You have somewhere probably in the vicinity of 1.5 billion units in the country that have never been lived in, never will be lived in. So you’re talking about 100% overbuild, conservatively. Some estimates say it’s as high as three billion, which is just so far beyond stupid.”
“How many vacant homes are there now? Each expert gives a very different number, with the most extreme believing the current number of vacant homes are enough for 3 billion people,” said He Keng, 81, a former deputy head of the statistics bureau.
“That estimate might be a bit much, but 1.4 billion people probably can’t fill them,” He said at a forum in the southern Chinese city Dongguan, according to a video released by the official media China News Service.
That’s people, not homes. Still, even if you cut it in half, to 750 million vacant condos, that’s a huge number. That’s the equivalent of 30 empty Shanghais.
Back to Zeihan:
“Evergrande going down means that their debts aren’t going to be serviced anymore, and the physical assets they have are going to be parceled up and foreign investors are going to be coming in seeing what bits that they can get.” Any foreigners investing in Chinese real estate need their heads examined.
“These things are things that the Chinese Communist Party would not normally allow to happen, so there’s a couple ways that this can go, none of them are good.”
“Option number one is we follow a western style bankruptcy and restitution program where this system is broken up and a lot of their assets are sold at pennies, maybe dimes, on a dollar.”
“You can count on private citizens being up in arms. I mean, the best estimate I’ve seen out of China is at 70% of total private savings is wrapped up in real estate, and most of these assets are worth no more than 10 cents on the dollar.”
“You have a fire sale of the single largest player which controls one sixth of the market, holy shit, things are going to get real very, very, very quickly.”
“Option number two is that the Chinese step in and abrogate the Hong Kong ruling. Now legally this cannot happen, but the Chinese Communist party is not really big on legal details when it comes to Hong Kong in particular.”
“Then Evergrande goes on some sort of state drip and everything with the system just kind of limps on, with the understanding now that Hong Kong has no legal authority over its own holdings, which will start an exodus of what few international firms are still there.”
“Regardless how this goes, don’t expect anything in the market to get better.”
“Evergrande may be the biggest player in this market, but it is by far not the only one who’s been doing stupid things like this, building condos that have no demand or running it like a Ponzi scheme. Every development company in the country basically operates this this way, and the second and third largest players in the industry are state-owned.”
“Even if all of a sudden this place were run by a bunch of Austrian economists, it’s too late.” Because of the one-child policy, there simply aren’t enough people of home-buying age.”
“I don’t want to say anything overly dramatic as ‘This is where it all starts to fall apart,’ because we’ve had a lot of things like that go down in the last 18 months. But this cuts to the core of what enables the average [Chinese] citizen to actually support the government, and there’s no way we move forward from this without a lot of side damage.”
The Chinese economy is already sucking. If the housing oversupply is really as bad as Zeihan makes out, China is in for an economic upheaval that makes 1929 look like a mild case of the hiccups.
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32 Responses to “Zeihan on Evergrande: 1.5 BILLION Unsold Condos?”
I know everything China does, it does big, but those numbers are astounding. The outside estimate is one empty condo for every 2 people in the world. The conservative estimate is twice the population of the United States. Even if they took half a century to unwind, they’d still be flooding the market with 10’s of millions of unwanted condos every year.
The only thing to do is bulldoze them, but if that’s where most of the Chinese people’s personal savings are, well, given the history of peasant unrest in China, their population might drop below 1 billion decades sooner than anticipated.
Belt and Road is. $100 billion flop, foreign companies are running for the door, exports are in the tank, corruption is rampant and millions of people are broke with no prospects. Great job,CCP.
I’m guessing that part of the problem is typical Chinese construction…non-existent foundations/footings, concrete with almost no cement content (mostly sand and gravel), and infrastructure to support the housing complexes that simply doesn’t exist (potable water, sewers, electrical substations, etc.). The housing itself is poorly constructed and will probably disintegrate within 20 years.
So a real valuation of those properties is probably correct at less than 10%, or maybe less than 5%, of the nominal “book” value. Some of them (possibly most of them) will have a net negative value in that they need spend the money to be torn down since they’re unlivable. That’ll be a hard correction to swallow.
These empty buildings stand as monuments to state power, like Egyptian pyramids. And since the government “confiscates the savings of the citizen population so it can only go into projects funded by Chinese State Banks,” it was similarly built by slave labor, although slave “capital” is more accurate, slave labor being reserved for Uyghurs in Xinjiang.
As an economic system, China resembles nothing so much as as the model introduced by Tito’s Yugoslavia—Market Socialism. State actors own the means of production but planning is farmed out to private parties who do the real work of directing theses means. So in a large sense, the economy is divided up among competing cartels.
For Yugoslavia, this arrangement produced the Yugo; for China it resulted in empty condos by the hundreds of millions.
Some very conservative estimates place building maintenance costs at 50% of the initial building cost over a twenty-five years span. So not only will loans made to construct the living units never be repaid, they will continue to act as a sinkhole to be filled with future capital pools.
Under the commonly accepted rules of accounting, buildings are excludes from the “wasting asset” category and GDP formulas consider the funds used to construct these buildings as a indicator of economic well-being.
Place no trust in this arrangement. Crooked accountants and are easy to find and China cheerleaders like economist Paul Krugman will continue to blow smoke up everyone’s skirt.
In truth, the Chinese economy is sick and efforts are being made to disguise this. The comeuppance will be brutal.
Any statistics coming out of China or Russia are to be distrusted. Period.
I would not be a bit surprised that a significant fraction of those 1.5 billion housing units exist only on paper. Nor would I be surprised to find out that they were literally “built for ants” in miniature.
I know a couple of people who were in China during the boom years. One of them was totally taken in by the “rah-rah China” thing, up until he had a couple of very ugly experiences. Ones that basically confirmed things that Zeihan has been saying for the last couple of years. He’s not a fan of China, these days…
The other guy saw the cracks in the facade a long time ago, and advised his company accordingly. The higher-ups in that company said he was wrong, and subsequently fired him. They’re in the process of bowing to reality, right now, and slowly going bankrupt. He’s laughing his ass off, having divested himself and his retirement funds when they were worth something still.
I don’t know if China can pull out of the decline, but I’ll simply point out that this is another iteration of the Chinese “urge to centralize and control” that has proven to be their downfall multiple times. The French have a term for it: l’appel du vide. The Chinese culture is, based on the history of it all, an almost pathologic need to exercise control over the smallest detail. That simply does not work, and that fact has screwed them every time. It is in the process of doing it, right now: Xi can’t trust a damn thing he’s been told, and if he is taking anyone’s word on anything in the Chinese economy or government, he’s a delusional fool.
If I were a businessman, looking at investing in China? I’d be hard-pressed to try and figure out how to get accurate and honest numbers out of that system. I’m not sure that it’s even possible, at this point: It’s like the Russians, where people have been lying and fudging figures for so long and in so many different ways that they don’t even know which end is up. Putin’s gamble in Ukraine? The silly bastard thought he was making a sure bet, based on the pretty lies he was told by everyone in his intelligence organizations and military. How’d that work out, again…?
We should look at this as an opportunity to solve the issue of where to house all these migrants (aka invaders). Rent a couple ghost cities in the middle of nowhere from China and put them all in it. China won’t let them go anywhere and they will all starve to death but that will happen in China so no one will care.
I recently read of a case of this woman who deposited 20 billion yuan from oversea ventures and want to earn extra interest. A couple of years later, she need to take some of that money out as a deposit for a new venture and found out that she literally have 4 cents. A branch manager decided to divert her money into a shady venture and it’s all gone. The court ruled that the branch manager and only him is responsible for the fund being embezzled, the bank hold zero responsibility to the woman’s lost.
A smart man learns from others experience. The United States would do well to take note of government input in nations such as China. The housing/bank crises of 2009, student loan debacle, Covid ‘helicopter money’ loan accountability and most other large financial disasters featured US government policy as a major player. We have yet to see the headlines on PPP and other programs but the headlines are assuredly coming.
I used to read Zeihan occasionally. Then I heard him rant about the border and how Republicans are to blame for the present mess.
Now I know he’ll regurgitate just about anything, so, I don’t bother to read his ‘wisdom’. 1.5 billion houses, 1.5 billion mouses, whatever. You’re asked to dispense with your judgment and simply gasp and marvel, regardless of the probability of error.
Any statistics coming out of China or Russia are to be distrusted. Period.
Very true
I would not be a bit surprised that a significant fraction of those 1.5 billion housing units exist only on paper. Nor would I be surprised to find out that they were literally “built for ants” in miniature.
“Building for ants” takes effort. I’m going to go with option 1:
On paper, there may well be ~1.5 billion “units” that aren’t being occupied right now. However, that’s because > 50% of them do not exist in any form.
Communist Party / Gov’t officials were paid off to fake the paperwork. fakes:
A: Have an actual unit that’s being built. But have multiple sold “units” that all pointed to the same unit
B: Have nothing built but piles of paperwork claiming things exist that don’t exist
That’s on top of the cheap and shoddy construction that will fall apart quickly
Xi can’t afford for their to be an actual bankruptcy with an actual examination of the real assets of Evergrande. Too many of he corrupt officials who would be uncovered have been attaching themselves like Remoras to him.
It doesn’t matter if blocking the bankruptcy causes every single non-corrupt foreign investor to pull all their money out of China. The bloodbath that would happen if the Chinese people find out what’s happened to their “savings” would be worse for Xi.
“I would not be a bit surprised that a significant fraction of those 1.5 billion housing units exist only on paper. Nor would I be surprised to find out that they were literally ‘built for ants’ in miniature.”
In the past couple of years, CCP officials Li Jianping, Lai Xiaomin and Zhang Zhongsheng have been executed after being convicted on separate bribery and corruption charges. Chinese bribes may have few or no repercussions for US government officials but this activity is severely punished in China.
This leads me to conclude that whatever real estate scam is being perpetrated in China will be a little more subtle than diverting real estate funds to build ant farms.
No matter how you parse it, the raw fact is that “bad information” in terms of what the money has been doing permeates the Chinese economy. The more distortions imposed by Xi and his ilk, the longer it is going to take for that information to work its way out of the system. This is the same exact thing that happened to China the last time around, and likely represents what will happen the next time, too.
Go back and examine the effects of the tons and tons of silver that the Spanish traded with Imperial China. Look at the vast changes that came in with the new food crops coming in from the New World; observe the historical data that resulted from how the Imperial Chinese mandarin class attempted to retain power and control in the face of all that change and power.
The resultant crack-up led directly to China’s long, slow disaster. Xi is re-creating the same situation, just with a different tune.
Money isn’t really money; it’s information. You start screwing around with how it gets distributed and used, and all the resources that money represents start to get misallocated to extraneous and inefficient uses. In China, because they didn’t bother to build out a real economy with things like functioning pension plans, all that wealth got stuck into real estate; which is now demonstrating its irrelevance and lack of value. Had the Chinese not tried gaming things and running everything from the top, they’d all be better off. But, because they did? The entire house of cards is in danger of caving in on itself.
The fact that they used more concrete and steel in just 3 years than the entire US did throughout the 20th Century serves as a clue; there’s no damn way that much concrete got placed rationally and with any real sense. Just the planning alone should have taken decades, and judging from the number of collapsed “tofu-dreg” construction projects…?
Yeah. China is, as always, a very impressive mess. I’ve no doubt that the Chinese Imperial Hidden City and all the ancillary eunuchs running the place were pretty impressive, back in their day. They still ran the country into the ground, and set the stage for China’s long humiliation. Xi will no doubt leave some impressive palaces and funerary sites behind…
Better: money is a medium of exchange, any price denominated in that currency is information.
Even so, your main point seems to be that the pricing mechanism has been severely distorted through currency manipulation. This is unquestionably true and explains these distortions in the Chinese real estate market. For the capital misallocation to be corrected, the bad loans will have to be “marked to market”.
It remains to be seen if this is an option for the CCP. The correction, however it comes, will lead to scores of CCP officials being executed for corruption.
It’s not just currency manipulation; the distorted structure of China’s economy is mostly due to there being no safe store of value for the people. The Communists wanted a Western economy without all the Western institutions that make such a thing work, like safe places to put money and working stock markets that aren’t warped out of all contact with reality due to government intervention. China is screwed not just because they’ve got those incredibly bad investments in empty cities, they’re screwed because the CCP has refused to let nature take its course with state-owned inefficient industries…
It doesn’t matter what context it is in, if you block the signal…? Disaster ensues, and the longer it takes to manifest, the worse it is. You could liken it to a biome that some knucklehead has chosen specific species to do well in… The distortions of reality and the course of natural law will wind up destroying the system. It’s like “Oh, yeah… We want to kill off all the mosquitoes…”, and then once you’ve done that, you discover that those mosquitoes fed the bats and the birds that also kept other insects in check, as well as pollinating some things, and bam, there ya go… Ecological collapse.
Complex systems like economies and ecological biomes are not really amenable to intervention by anyone but God himself, because you need omniscience and omnipotence to really do any sort of intervention that won’t result in ultimate disaster.
The conceit of all these idjit types is that they’re smarter than everyone else and the system; the reality is, they’re actually dumber than most, because while you and I know we’re too dumb and don’t have enough information to do these things, they have the arrogance and audacity to think that they can control it all. Which they can’t…
The CCP and a Western-style economy? Walt Disney already did this one, in that short he put in Fantasia: “The Sorcerer’s Apprentice”. It’s just too bad that there’s no actual sorcerer coming to bail Chairman Xi out.
I love seeing PZ’s videos, and … his optimism for USA and pessimism for Russia / China / nearly everyone else feels too-good-to-be-true.
Maybe he’s like a geopolitical Steve Jobs – he says something that’s good news for us, our leaders make decisions as though it’s true, and things kinda work out well after all. Jobs had his Reality Distortion Field after all.
Still, I can’t get enough of PZ. He brings a lot of apparent knowledge to the table. Definitely feels like a Deep State wonk, but keeping that in mind and with a grain of salt, it’s fascinating to see how he thinks.
I expect to all but vomit when PZ mentions Tucker interviewing Putin. Zeihan won’t be able to avoid mentioning it, and it’ll be the usual leftist claptrap.
—————————————-
Carl Sagan said extraordinary claims require extraordinary proof. 1,500,000,000 unoccupied housing units is an extraordinary claim. Now let’s see some serious proof they exist anywhere but on paper.
Option # 2 sounds exactly like the “too big to fail” kleptocrat response to 2008 in the USA. Screw everybody except the guilty; prop them up and manage the system (remember Quantitative Easing, QE2, QE-infinity?) until the dust settles in a half dozen years.
This sounds like the most likely prediction to come true.
In the past couple of years, CCP officials Li Jianping, Lai Xiaomin and Zhang Zhongsheng have been executed after being convicted on separate bribery and corruption charges. Chinese bribes may have few or no repercussions for US government officials but this activity is severely punished in China.
Only when you’re an enemy of Xi.
Top to bottom, the entire economy is corrupt. Unless you’re a connected individual (and “connected” means “either you or a close family member are a CCP member in good standing with Xi”), you can not get anything done in China without paying off someone who is connected. Xi hasn’t done anything to change that, in fact he’s made it worse with his “re-centering” the economy around the CCP.
Xi has used “corruption” charges to kill potential rivals. If he was actually anti-corruption, he would be decreasing the power and control of the CCP, and letting corrupt State owned business fail.
“Complex systems like economies and ecological biomes are not really amenable to intervention by anyone but God himself, because you need omniscience and omnipotence to really do any sort of intervention that won’t result in ultimate disaster.”
This is solid insight. Hardly anyone remembers that “ecology” was originally defined as “animal economics “. So yes, neither system is amenable to centralized control because the would-be controller is likewise subject to the preexisting laws he wishes to overrule.
This illustrates the futility of socialism an indicates its ultimate collapse.
Peter Zeihan seems to have some confusion on a couple of key points with this that I’ve seen pointed out elsewhere. The Hong Kong court ruled that Evergrande Hong Kong is bankrupt. This is a subsidiary of the Evergrande of mainland China. By any honest accounting I’m sure that big Evergrande is also bankrupt, but this court ruling only impacts the Hong Kong portion. That is significant because it doesn’t force Beijing to step in with the heavy hand yet. Still a train wreck, but it’s still a slow motion train wreck. As long as they can keep the train wreck in slow motion, nobody in positions of power needs to be shot.
The second point that seems to be missing is how real estate (condos really) “works” in China. Huge ponzi scheme. Those things are purchased before they are ever built. So there very well may be 1.5 billion addresses purchased and not lived in, but there is no telling how many have actually been even partially constructed let alone finished.
Been hearing about the imminent demise of Red China for the last 2+ years. Still waiting.
The answer is obvious. China must build robots to “live” in the unoccupied condos.
I know everything China does, it does big, but those numbers are astounding. The outside estimate is one empty condo for every 2 people in the world. The conservative estimate is twice the population of the United States. Even if they took half a century to unwind, they’d still be flooding the market with 10’s of millions of unwanted condos every year.
The only thing to do is bulldoze them, but if that’s where most of the Chinese people’s personal savings are, well, given the history of peasant unrest in China, their population might drop below 1 billion decades sooner than anticipated.
Sounds like China needs some immigrants. I’m sure they’ll strengthen that economy too, just like the DEI WEF folks tell us.
Belt and Road is. $100 billion flop, foreign companies are running for the door, exports are in the tank, corruption is rampant and millions of people are broke with no prospects. Great job,CCP.
I’m guessing that part of the problem is typical Chinese construction…non-existent foundations/footings, concrete with almost no cement content (mostly sand and gravel), and infrastructure to support the housing complexes that simply doesn’t exist (potable water, sewers, electrical substations, etc.). The housing itself is poorly constructed and will probably disintegrate within 20 years.
So a real valuation of those properties is probably correct at less than 10%, or maybe less than 5%, of the nominal “book” value. Some of them (possibly most of them) will have a net negative value in that they need spend the money to be torn down since they’re unlivable. That’ll be a hard correction to swallow.
These empty buildings stand as monuments to state power, like Egyptian pyramids. And since the government “confiscates the savings of the citizen population so it can only go into projects funded by Chinese State Banks,” it was similarly built by slave labor, although slave “capital” is more accurate, slave labor being reserved for Uyghurs in Xinjiang.
As an economic system, China resembles nothing so much as as the model introduced by Tito’s Yugoslavia—Market Socialism. State actors own the means of production but planning is farmed out to private parties who do the real work of directing theses means. So in a large sense, the economy is divided up among competing cartels.
For Yugoslavia, this arrangement produced the Yugo; for China it resulted in empty condos by the hundreds of millions.
Some very conservative estimates place building maintenance costs at 50% of the initial building cost over a twenty-five years span. So not only will loans made to construct the living units never be repaid, they will continue to act as a sinkhole to be filled with future capital pools.
Under the commonly accepted rules of accounting, buildings are excludes from the “wasting asset” category and GDP formulas consider the funds used to construct these buildings as a indicator of economic well-being.
Place no trust in this arrangement. Crooked accountants and are easy to find and China cheerleaders like economist Paul Krugman will continue to blow smoke up everyone’s skirt.
In truth, the Chinese economy is sick and efforts are being made to disguise this. The comeuppance will be brutal.
Any statistics coming out of China or Russia are to be distrusted. Period.
I would not be a bit surprised that a significant fraction of those 1.5 billion housing units exist only on paper. Nor would I be surprised to find out that they were literally “built for ants” in miniature.
I know a couple of people who were in China during the boom years. One of them was totally taken in by the “rah-rah China” thing, up until he had a couple of very ugly experiences. Ones that basically confirmed things that Zeihan has been saying for the last couple of years. He’s not a fan of China, these days…
The other guy saw the cracks in the facade a long time ago, and advised his company accordingly. The higher-ups in that company said he was wrong, and subsequently fired him. They’re in the process of bowing to reality, right now, and slowly going bankrupt. He’s laughing his ass off, having divested himself and his retirement funds when they were worth something still.
I don’t know if China can pull out of the decline, but I’ll simply point out that this is another iteration of the Chinese “urge to centralize and control” that has proven to be their downfall multiple times. The French have a term for it: l’appel du vide. The Chinese culture is, based on the history of it all, an almost pathologic need to exercise control over the smallest detail. That simply does not work, and that fact has screwed them every time. It is in the process of doing it, right now: Xi can’t trust a damn thing he’s been told, and if he is taking anyone’s word on anything in the Chinese economy or government, he’s a delusional fool.
If I were a businessman, looking at investing in China? I’d be hard-pressed to try and figure out how to get accurate and honest numbers out of that system. I’m not sure that it’s even possible, at this point: It’s like the Russians, where people have been lying and fudging figures for so long and in so many different ways that they don’t even know which end is up. Putin’s gamble in Ukraine? The silly bastard thought he was making a sure bet, based on the pretty lies he was told by everyone in his intelligence organizations and military. How’d that work out, again…?
We should look at this as an opportunity to solve the issue of where to house all these migrants (aka invaders). Rent a couple ghost cities in the middle of nowhere from China and put them all in it. China won’t let them go anywhere and they will all starve to death but that will happen in China so no one will care.
I recently read of a case of this woman who deposited 20 billion yuan from oversea ventures and want to earn extra interest. A couple of years later, she need to take some of that money out as a deposit for a new venture and found out that she literally have 4 cents. A branch manager decided to divert her money into a shady venture and it’s all gone. The court ruled that the branch manager and only him is responsible for the fund being embezzled, the bank hold zero responsibility to the woman’s lost.
[…] SOMEBODY MUST HAVE ACCIDENTALLY ADDED AN EXTRA ZERO SOMEWHERE IN THEIR MATH: Zeihan on Evergrande: 1.5 BILLION Unsold Condos? […]
Ah, yes, Peter Zeihan. Unlike a stopped clock he’s not right even twice a day. So I’d take any report from him with a massive boulder of salt.
That’s one big Potemkin village!!
That should be 20 million yuan.
Jay Dee says:
February 7, 2024 at 5:29 AM
The answer is obvious. China must build robots to “live” in the unoccupied condos.
Fred Pohl smiles!
(“The Midas Plague”)
And yet the mainstream media parrots the CCP claim that its economy grew 5.2% last year.
It seems much more probable that it contracted that much.
We should look at this as an opportunity to solve the issue of where to house all these migrants (aka invaders).
Better yet, send the Gazans there.
A smart man learns from others experience. The United States would do well to take note of government input in nations such as China. The housing/bank crises of 2009, student loan debacle, Covid ‘helicopter money’ loan accountability and most other large financial disasters featured US government policy as a major player. We have yet to see the headlines on PPP and other programs but the headlines are assuredly coming.
I used to read Zeihan occasionally. Then I heard him rant about the border and how Republicans are to blame for the present mess.
Now I know he’ll regurgitate just about anything, so, I don’t bother to read his ‘wisdom’. 1.5 billion houses, 1.5 billion mouses, whatever. You’re asked to dispense with your judgment and simply gasp and marvel, regardless of the probability of error.
Kirk says:
Any statistics coming out of China or Russia are to be distrusted. Period.
Very true
I would not be a bit surprised that a significant fraction of those 1.5 billion housing units exist only on paper. Nor would I be surprised to find out that they were literally “built for ants” in miniature.
“Building for ants” takes effort. I’m going to go with option 1:
On paper, there may well be ~1.5 billion “units” that aren’t being occupied right now. However, that’s because > 50% of them do not exist in any form.
Communist Party / Gov’t officials were paid off to fake the paperwork. fakes:
A: Have an actual unit that’s being built. But have multiple sold “units” that all pointed to the same unit
B: Have nothing built but piles of paperwork claiming things exist that don’t exist
That’s on top of the cheap and shoddy construction that will fall apart quickly
Xi can’t afford for their to be an actual bankruptcy with an actual examination of the real assets of Evergrande. Too many of he corrupt officials who would be uncovered have been attaching themselves like Remoras to him.
It doesn’t matter if blocking the bankruptcy causes every single non-corrupt foreign investor to pull all their money out of China. The bloodbath that would happen if the Chinese people find out what’s happened to their “savings” would be worse for Xi.
Popcorn, popped
“I would not be a bit surprised that a significant fraction of those 1.5 billion housing units exist only on paper. Nor would I be surprised to find out that they were literally ‘built for ants’ in miniature.”
In the past couple of years, CCP officials Li Jianping, Lai Xiaomin and Zhang Zhongsheng have been executed after being convicted on separate bribery and corruption charges. Chinese bribes may have few or no repercussions for US government officials but this activity is severely punished in China.
This leads me to conclude that whatever real estate scam is being perpetrated in China will be a little more subtle than diverting real estate funds to build ant farms.
Forget your ‘hotel inspired’ scent machines.
Next big investment oppo:
Vacation Condo Timeshares In China!
Bribery can be punished severely if you’re not on Xi’s good side. If you’re not an enemy or potential threat, prosecution is far less likely.
No matter how you parse it, the raw fact is that “bad information” in terms of what the money has been doing permeates the Chinese economy. The more distortions imposed by Xi and his ilk, the longer it is going to take for that information to work its way out of the system. This is the same exact thing that happened to China the last time around, and likely represents what will happen the next time, too.
Go back and examine the effects of the tons and tons of silver that the Spanish traded with Imperial China. Look at the vast changes that came in with the new food crops coming in from the New World; observe the historical data that resulted from how the Imperial Chinese mandarin class attempted to retain power and control in the face of all that change and power.
The resultant crack-up led directly to China’s long, slow disaster. Xi is re-creating the same situation, just with a different tune.
Money isn’t really money; it’s information. You start screwing around with how it gets distributed and used, and all the resources that money represents start to get misallocated to extraneous and inefficient uses. In China, because they didn’t bother to build out a real economy with things like functioning pension plans, all that wealth got stuck into real estate; which is now demonstrating its irrelevance and lack of value. Had the Chinese not tried gaming things and running everything from the top, they’d all be better off. But, because they did? The entire house of cards is in danger of caving in on itself.
The fact that they used more concrete and steel in just 3 years than the entire US did throughout the 20th Century serves as a clue; there’s no damn way that much concrete got placed rationally and with any real sense. Just the planning alone should have taken decades, and judging from the number of collapsed “tofu-dreg” construction projects…?
Yeah. China is, as always, a very impressive mess. I’ve no doubt that the Chinese Imperial Hidden City and all the ancillary eunuchs running the place were pretty impressive, back in their day. They still ran the country into the ground, and set the stage for China’s long humiliation. Xi will no doubt leave some impressive palaces and funerary sites behind…
“Money isn’t really money; it’s information.”
Better: money is a medium of exchange, any price denominated in that currency is information.
Even so, your main point seems to be that the pricing mechanism has been severely distorted through currency manipulation. This is unquestionably true and explains these distortions in the Chinese real estate market. For the capital misallocation to be corrected, the bad loans will have to be “marked to market”.
It remains to be seen if this is an option for the CCP. The correction, however it comes, will lead to scores of CCP officials being executed for corruption.
It’s not just currency manipulation; the distorted structure of China’s economy is mostly due to there being no safe store of value for the people. The Communists wanted a Western economy without all the Western institutions that make such a thing work, like safe places to put money and working stock markets that aren’t warped out of all contact with reality due to government intervention. China is screwed not just because they’ve got those incredibly bad investments in empty cities, they’re screwed because the CCP has refused to let nature take its course with state-owned inefficient industries…
It doesn’t matter what context it is in, if you block the signal…? Disaster ensues, and the longer it takes to manifest, the worse it is. You could liken it to a biome that some knucklehead has chosen specific species to do well in… The distortions of reality and the course of natural law will wind up destroying the system. It’s like “Oh, yeah… We want to kill off all the mosquitoes…”, and then once you’ve done that, you discover that those mosquitoes fed the bats and the birds that also kept other insects in check, as well as pollinating some things, and bam, there ya go… Ecological collapse.
Complex systems like economies and ecological biomes are not really amenable to intervention by anyone but God himself, because you need omniscience and omnipotence to really do any sort of intervention that won’t result in ultimate disaster.
The conceit of all these idjit types is that they’re smarter than everyone else and the system; the reality is, they’re actually dumber than most, because while you and I know we’re too dumb and don’t have enough information to do these things, they have the arrogance and audacity to think that they can control it all. Which they can’t…
The CCP and a Western-style economy? Walt Disney already did this one, in that short he put in Fantasia: “The Sorcerer’s Apprentice”. It’s just too bad that there’s no actual sorcerer coming to bail Chairman Xi out.
I love seeing PZ’s videos, and … his optimism for USA and pessimism for Russia / China / nearly everyone else feels too-good-to-be-true.
Maybe he’s like a geopolitical Steve Jobs – he says something that’s good news for us, our leaders make decisions as though it’s true, and things kinda work out well after all. Jobs had his Reality Distortion Field after all.
Still, I can’t get enough of PZ. He brings a lot of apparent knowledge to the table. Definitely feels like a Deep State wonk, but keeping that in mind and with a grain of salt, it’s fascinating to see how he thinks.
I expect to all but vomit when PZ mentions Tucker interviewing Putin. Zeihan won’t be able to avoid mentioning it, and it’ll be the usual leftist claptrap.
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Carl Sagan said extraordinary claims require extraordinary proof. 1,500,000,000 unoccupied housing units is an extraordinary claim. Now let’s see some serious proof they exist anywhere but on paper.
Option # 2 sounds exactly like the “too big to fail” kleptocrat response to 2008 in the USA. Screw everybody except the guilty; prop them up and manage the system (remember Quantitative Easing, QE2, QE-infinity?) until the dust settles in a half dozen years.
This sounds like the most likely prediction to come true.
Malthus says:
In the past couple of years, CCP officials Li Jianping, Lai Xiaomin and Zhang Zhongsheng have been executed after being convicted on separate bribery and corruption charges. Chinese bribes may have few or no repercussions for US government officials but this activity is severely punished in China.
Only when you’re an enemy of Xi.
Top to bottom, the entire economy is corrupt. Unless you’re a connected individual (and “connected” means “either you or a close family member are a CCP member in good standing with Xi”), you can not get anything done in China without paying off someone who is connected. Xi hasn’t done anything to change that, in fact he’s made it worse with his “re-centering” the economy around the CCP.
Xi has used “corruption” charges to kill potential rivals. If he was actually anti-corruption, he would be decreasing the power and control of the CCP, and letting corrupt State owned business fail.
Not happening, not going to happen
Sounds like there’s plenty of room for Gazans.
“Complex systems like economies and ecological biomes are not really amenable to intervention by anyone but God himself, because you need omniscience and omnipotence to really do any sort of intervention that won’t result in ultimate disaster.”
This is solid insight. Hardly anyone remembers that “ecology” was originally defined as “animal economics “. So yes, neither system is amenable to centralized control because the would-be controller is likewise subject to the preexisting laws he wishes to overrule.
This illustrates the futility of socialism an indicates its ultimate collapse.
Peter Zeihan seems to have some confusion on a couple of key points with this that I’ve seen pointed out elsewhere. The Hong Kong court ruled that Evergrande Hong Kong is bankrupt. This is a subsidiary of the Evergrande of mainland China. By any honest accounting I’m sure that big Evergrande is also bankrupt, but this court ruling only impacts the Hong Kong portion. That is significant because it doesn’t force Beijing to step in with the heavy hand yet. Still a train wreck, but it’s still a slow motion train wreck. As long as they can keep the train wreck in slow motion, nobody in positions of power needs to be shot.
The second point that seems to be missing is how real estate (condos really) “works” in China. Huge ponzi scheme. Those things are purchased before they are ever built. So there very well may be 1.5 billion addresses purchased and not lived in, but there is no telling how many have actually been even partially constructed let alone finished.