China’s real estate crisis isn’t over.
Thanks to crippling ineptitude and debt, the foundation of China’s economy is toppling.
No one is safe, and the CCP is panicking.
China’s economic downfall is like the death scene from Karate Girl.
Welcome to China Uncensored.
I’m Chris Chappell.
Two years after the spectacular collapse of Evergrande, China’s still grappling with
the real estate crisis.
With real estate companies toppling like dominoes.
Given that the property sector accounts for about 30 percent of China’s GDP, the CCP
is desperate to solve China’s real estate crisis.
I’ve covered in previous episodes how Chinese developers like Evergrande operated ponzi-like
schemes by continuously selling housing without finishing building them, all while collecting
debt in the process.
This backfired in a big way in 2021, and things just keep getting worse.
Last month, Evergrande filed for bankruptcy in the US
And posted that it lost $4.5 billion in the first half of this year.
After having its stock suspended for 17 months, it finally resumed trading last month, only
to have its shares plunge as much as 87 percent.
The developer’s even having a hard time selling off assets to get money to make payments.
And it still owes over $340 billion.
In the past two years, dozens of other developers have similarly defaulted on their financial
obligations.
But there’s one developer that has managed to avoid default, Country Garden .
It’s the largest developer in all of China, with almost four times more housing projects
than Evergrande.
Country Garden is so big that its boss, Yang Huiyan, was until recently the richest woman
in Asia.
According to the chief economist at Natixis , “Country Garden was considered the darling
of real estate developers when Evergrande defaulted on its debt back in late 2021, as
it had a much better-managed balance sheet”.
I guess people’s idea of “better-balanced” is having only $194 billion in total liabilities
as opposed to $340 billion.
Sure, it might be “better,” but that’s like saying a 350-pound man is healthier than
a 600-pound one.
It’s technically true, but I wouldn’t exactly recommend being 350 pounds.
Despite its debt, Country Garden thought it had escaped the real estate chaos.
In its 2023 annual report, it even said “China’s economy is back on track” and will find
“growth soaring to new heights”.
They might have jumped the gun just a little bit.
Because surprise surprise, even Country Garden is now at risk of defaulting thanks to its
crushing debt.
And if it goes down, could the CCP follow?
I’ll tell you how after the break.
Welcome back.
When Evergrande collapsed and failed to deliver projects they had started, people were absolutely
shocked.
There were protests and people stopped paying their mortgages, since those houses didn’t
exist.
Many smaller businesses suffered, as did employment rates.
Nearly two years on, everybody in China is still suffering, but it’s starting to look
like the worst hasn’t even come thanks to Country Garden.
In early August, it missed dollar bond payments.
Those were worth $22.5 million.
And it stoked panic when it didn’t have the means to make a $540 million payment for
an onshore private bond that was due earlier this week.
Country Garden just barely managed to avoid defaulting by reaching a deal to repay its
onshore private bond debt with installments over the next three years, though it had to
pay interest on the bond as originally scheduled.
That extension is not without controversy.
It was approved by a narrow 56% of the bondholders who voted.
But according to some smaller onshore bondholders, the extension was unfair and illegal, since
some important notices allegedly were only sent to selective bondholders, and the meeting
for the vote was delayed multiple times without clear reasons.
Chinese corporations doing shady things to get what they want?
Wow, I’m shocked.
Country Garden also managed to secure an extension for the dollar bonds, which are now due this
week.
It’s not surprising that they’d want to avoid default at all costs, not just for the
sake of the company.
Country Garden’s default would be the largest since Evergrande’s collapse in 2021.
Some, like S&P Global Ratings , say it would hit even harder than Evergrande, which, in
turn, would spell disaster for smaller companies.
And, y’know, maybe China’s economy.
After the deal, Country Garden’s shares jumped by 15 percent, but it’s still down
62 percent from the start of the year.
According to the New York Times, “Many Country Garden bonds trade for pennies on the dollar,
suggesting that lenders have low hopes of getting repaid.”
The fact that Country Garden’s dollar bonds remain below 10 cents on the dollar still
shows that Country Garden’s at high risk of defaulting.
Really, all Country Garden is doing is kicking the can down the road.
It still has the equivalent of $15 billion in bonds, bank debt, and other borrowings
due within a year, all while having less than $14 billion in cash at hand.
On top of that, Country Garden is suffering from its worst financial performance since
going public in 2007, having lost almost $7 billion in the first half of this year thanks
to abysmal sales.
Country Garden not only has to think about how it’s going to pay for bonds and interest,
but also how it’s going to pay to finish its buildings.
According to Barclay’s , nearly half of Country Garden’s liabilities at the end
of last year were pre-sale deposits from homebuyers.
That means that nearly a million households could be affected by Country Garden’s debt
issues.
According to Nomura analysts, this also indicates that “Country Garden would need to invest
four times the amount Evergrande has done to ensure project completion and prevent pre-sold
homes being undelivered”.
But Evergrande and Country Garden are merely symptoms of just how bad things are in China.
I’ll tell you more after the break.
Welcome back.
China’s real estate crisis is coming during a perfect storm of economic crises.
Chinese people aren’t spending money because of fears of an economic downturn.
That helps speed up the economic downturn.
But you can’t blame them.
Youth unemployment rising to a record-high, before, y’know, they stopped reporting it,
Stocks are slumping as economic gloom spreads,
And foreign investors, usually greedy for Chinese money, are fleeing China’s stock
markets,
Which means a lot less money is being pumped into China.
So things are very bad.
The CCP is desperate to get its economy in shape, starting with the housing market.
They’re approving guidelines to boost construction of affordable housing
Easing mortgage rules,
Cutting down payments and mortgage rates for first-time home buyers.
And more measures are coming.
According to Reuters, “Proposed measures include lifting home-purchasing curbs in non-core
districts of major cities such as Beijing, Shanghai and Shenzhen”
Some of these curbs include restrictions on purchases by unqualified non-residents and
on the number of properties individuals can buy.
So much for Xi Jinping’s“Houses are for living in, not for speculation”.
In other words, China’s solution to its debt problem… is even more debt!
While we’re at it, why not make the debt even easier to build up?
“Several Chinese cities announced, after guidance from the central bank, that first-time
buyers could take loans without a credit check.”
That totally won’t backfire.
Many are hoping that China’s recent policies will help fix the economy, but they’re no
game changers.
According to Bloomberg, reducing mortgage rates would only improve China’s GDP by
just 0.1 or 0.2 percent.
The CCP’s well aware of this, yet all it seems to be willing to do is to encourage
even more debt.
The weight of all that debt piling up will ultimately result in a death as excruciating
as the one in Karate Girl.
But while China’s fueled by debt, China Uncensored is fueled by the love and support
we get from viewers like you on Patreon.com/ChinaUncensored.
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You also get to ask me questions I’ll answer on the show.
Today’s question comes from Philip Mader “Hello!
Will you consider posting your videos on X and adding a subscription feature there?
I would like to support you on X instead of patreon, but until then I will support you
here :)”
That’s a great question Philip.
I know some people have issues with Patreon, and I totally get that, but I think it would
be a mistake for us to start using Twitter, or X, whatever it's called these days.
The biggest part of our budget to make the show comes from viewer support on Patreon.
I’m not kidding when I say China Uncensored wouldn’t exist without it.
By the way, if you’re watching and you like the show, just a dollar an episode is all
it takes.
You can also set a monthly limit.
But so why not a subscription on Twitter?
Well, we know from a Twitter whistleblower that there was at least one Chinese spy working
at the company.
Twitter knew and didn't care because they were making big bucks from China.
Now that was before Elon Musk took over, so that might have changed, but Musk also is
heavily invested in China.
So I really don’t feel comfortable having the future of the show dependent on a platform
that China has so much sway over.
That’s why I appreciate you and the entire China Uncensored 50 Cent army support on Patreon.
If you want to join the 50 Cent Army, click that orange button.
And if you want to know why China’s economy is headed into a black hole, click this video.
Once again, I’m Chris Chappell.
See you next time.