China 'had 20 plates spinning', and they are all crashing right now, says Hayman Capital's Kyle Bass

China 'had 20 plates spinning', and they are all crashing right now, says Hayman Capital's Kyle Bass



The developments in China sound quite interesting. People are heavily invested in real estate there, and every single property developer in China today that is "public or listed" is in default today, according to the guest. It is worse than the 2007/08 financial crisis and China has a lot less experience dealing with this sort of problem. Country Garden and Evergrande combined are $500 billion dollars in debt, and those are just two of the defaulting companies.

He goes on to say that the "basic architecture of the Chinese economy is broken, and it's broken because it was real estate centric, and 70% of Chinese individual assets are in real estate," and real estate is down 25, 30, 40% (we aren't sure exactly), and the banking system has 30 - 40% exposure and 3.5x more leverage than we had here in 2007/08.

Winnie the Pooh is trying to censor this, "wiping websites clean of negative economic data about China." Even local governments there are going bankrupt because they were selling property to these bankrupt developers. I feel that we are going to see some interesting events over there soon.

 

One of the consequences of not being able to own land. Seems like a good idea until the unintended consequences kick in….

 

Or the practice of taking out the mortgage and paying the purchase price to Developer BEFORE construction has even begun.

What's more, buyers in China must typically pay the full price upfront, based on designs, renderings, demonstration units, and promised delivery
China's practice of pre-selling homes is beginning to backfire (qz.com)

 

That’s true. And sometimes the buyer waits a LOOOONG time before construction even starts. Imagine a mortgage on something that doesn’t exist.

 

Imagine collateral that doesnt exist to secure the loan.

 

Yeh, awesome system.

 

Inside a Chinese Ghost Town of Abandoned Mansions | WSJ

 

Much like our own Central Planning from On High to do with EV's.
Central planning causes dislocation of resources which it a losing proposition for everyone but the connected who get their graft and leave.

 

Not at all. Companies aren't being liquidated and people aren't losing their retirement savings over EVs.

 

Nonsense. No private person has owned land in Hong Kong for over 170 years, and it not only never had a significant real estate crash, but often topped lists of the freest and most prosperous economies in the world. China's crash is a consequence of using the finance-capitalist debt-money monetary system and pretending that owning fixed improvements is just as much a license to steal as owning land is. It's not. Land appreciates, buildings depreciate. The Chinese saw that almost every mainland Chinese private citizen who got rich got that way by holding land leases and pocketing the publicly created land rent; but they -- and their stupid mortgage lenders -- erroneously thought owning the improvements would be just as lucrative.

That would also describe the private landowning + debt money system that gave us the GFC. In China, the government encouraged real estate speculation to soak up private savings so that people would not consume, the balance of trade would continue to show a huge surplus, and the Party would be able to buy up more foreign assets.

The Chinese (based on HK) system of private ownership of producer goods and public ownership of land created the greatest economic miracle in the history of the world. Problem is, they don't understand why their geoist system worked, and Xi is trying to combine the worst features of their socialist legacy (corruption and top-down control) and capitalism (landholder privilege and debt money). If they don't smarten up, it is likely to get pretty ugly.

 

Companies are losing billions and, yes, retirees are losing their savings as the stock goes down or doesn't perform as well.

 

You start off with blatant misinformation. Thus your entire premise is flawed. This is all that merits a response.

https://www.nytimes.com/2003/08/15/business/property-slump-ruins-many-in-hong-kong.html

A 66% drop in value is a significant real estate crash….

The end. Sorry your opinions are based on false premises…

 

Sorry, I should have been clear that I was talking about the 150 years without private landowning before HK reverted to Chinese rule in 1997. Once the CCP was in control, all bets were off because normal market processes were no longer operative.

It's true there was a very rapid spike and crash in 1996-99 because of changes in China's investment policy wrt HK and the uncertainty over the colony's governance, with values quickly returning to where they were in 1995. It appears to have been more of a "pump and dump" phenomenon than a boom and crash.

No, the false premise was the claim that China's real estate bubble is due to absence of private landowning -- as proved by the fact that virtually every country that has private landowning has also had real estate bubbles and crashes, often many severe ones.

 

https://www.okokhk.org/post/a-brief-history-of-hong-kong-s-housing-crisis

Six years isn’t a pump and dump.

So you believe the Asian Financial Crisis and bad housing decisions in Hong Kong in the decades leading up to 1997 had no effect on the crash? It was effects of Chinese control? Hmmm. That seems to be your unsubstantiated opinion.

I’m unaware of any country having home buyers take out mortgages as much as years before construction begins. . I’m unaware of anything even close to what’s going on in China now happening elsewhere. I’m open to your evidence….


My post isn’t my opinion. It’s a view shared by many analysts.

https://www.cato.org/blog/anatomy-c... China's Housing,housing bubble prior to 2020.

Your opinions are interesting but I’m not seeing any basis for having such opinions. The evidence all seems to conflict with your opinions.

 

How is that responsive to what I wrote?

The "six years" is not based on long-term price trends, but taking the peak of the steep 1996-97 run-up as the reference point. The very rapid run-up and crash in 1996-99 looks a lot like a pump and dump, and nothing like it ever happened in the previous 150 years of HK having no private landowning. So the claim that the current Chinese real estate bubble has occurred because it has no private ownership of land is incorrect and makes no sense.

The 1997 Asian financial crash did of course have an effect. But in fact, the 97 crisis was less severe in HK than other East Asian countries precisely because fewer people were exposed to the real estate bubble.

Compare the history of HK real estate prices in the 150 years before 1996 and what happened after.

It certainly happened in Japan in the 80s, and still goes on in the hottest markets in Canada, especially Toronto and Vancouver.

Have you seen "The Big Short"? Where were you in 2008?

That doesn't contradict what I wrote. Indeed, it agrees the problem is the CCP's policies that have encouraged debt and denied households access to alternative investment vehicles.

I've explained why the claim that China's real estate bubble has emerged because of absence of private landowning is incorrect.

No, I've seen no such evidence.

 

Buying before construction begins is commonplace for new build apartments in Australia. How long before? Not sure - 'years' probably isn't the norm, but I wouldn't be remotely surprised if it was happening regularly. I am told some projects don't actually go ahead without a certain amount of buyers already committed. The same sort of thing happens in the US. If your point is that China is unusual because this happens, then it isn't much of a point. There are also places like Singapore where a most housing involves buying & selling leases for property that is governemnt owned. I am not aware the real estate market there is especially volatile.

If you are trying to argue that the scale is different in China then you may have a point, but you'll need to be more specific. You also seem to be trying to argue that limited investment opportunities outside real estate creates distortions in the real estate market. That may well be true, though I would not trust the free market zealots at the Cato Institute to lay out that case honestly. Real estate is a popular investment across a wide variety of economies.

 

It conflicts with your opinion that it was a pump and dump. It points out the price increases happened over a long period based on poor planning decisions before Chinese control (essentially intentional artificial government induced housing shortages). It points out the drop was nearly 70% of value and took 6 years to begin recovery. It points out it was not Chinese re-control of Hong Kong that caused the crash. It is your opinion that Chinese re-control caused the 1997 crash you originally claimed never happened in over 170years of no private ownership of land. You’ve been wrong on every point.

Prices bottomed in 2003. Investment in land stabilizes these markets. That’s why in 1997 Hong Kong saw a 70% devaluation and in 2008 “recession” we saw only a 13% drop in value.

I really have little interest in goalpost moving. You claimed:

This is not true as I’ve shown. And a free economy is not one where housing is artificially kept in short supply. A free economy is not one where it takes a decade to get into public or private housing.

Another unsubstantiated opinion. Show me a 70% devaluation over six years like happened in Hong Kong that you were unaware of.

Show me this happened in Toronto. Or Japan.

https://www.cnbc.com/amp/2023/11/15...-are-20-times-the-size-of-country-garden.html

I’m open to evidence…unsubstantiated opinions that conflict with easily accessible evidence like I’ve presented don’t impress me.

Values decreased around 13% for the 2008 collapse here. They’ve fallen around 15% already in China.

https://fortune.com/2023/08/17/china-home-sales-worse-than-official-data-real-estate-crisis/amp/

See above! Did people pre- buy homes in 2008 and have 52% not built over a 5 year period while they paid the mortgage on something that didn’t exist? No. It seems you don’t know what’s going on in China.

Land IS the alternative investment vehicle. It’s a stable investment because it has actual value based on natural resources. It’s why we see 13% decreases in value while Hong Kong saw 70% devaluation. Are you familiar with diversification in investing? Why is it done? There are consequences to allowing people to have disposable income while limiting investment opportunities. China is finding that out. Hong Kong found out in 1997-2003.

China is approaching US levels of income inequality while the standard of living for almost all Chinese is far below the US. Consider there are less than 200 vehicles owned per 1000 people in China but 800 per 1000 in the US. We see an economy that can’t build 50% of housing units already “paid for” by the consumer in China. Hardly a smashing economic success story. High income and wealth inequality, inability for (allowed) markets to function, and still low standards of living. There are less folks starving to death than in the past in China, but that’s about the only positive metric and a pretty low bar.

You’ve posted false claims based on false premises. All your data points are incorrect. Inability to invest in the most stable vehicle is a huge factor. That’s one of the main alternative investment vehicles denied to Chinese.

Chinese can invest in stocks. Bonds. Gold. Crypto. You name it. But the most stable investment, based on intrinsic value of natural resources, is denied. And yes, this matters.

You’ve seen it, you just prefer unsubstantiated opinions to evidence.

 

I saw a YT video on this a year or two ago. Apparently there's entire 'ghost cities' over there that are skyscraper retirement condominiums with no plumbing, no electricty or running water, basically empty concrete shells. It has long been predicted that it was only a matter of time before tens of millions of Chinese workers found out their life savings went into this scam and everything crashes. Guess we're there now.

 

I’m open to evidence buyers pay mortgages for years before construction begins anywhere but China. I have no use for unsubstantiated opinions. I’m happy to accept evidence but historically ya’ll just have opinions with no basis.

Show me a five year period where only 48% of paid for units are constructed anywhere else on earth presently or in the past. Again, I’m open to evidence.

I’ve never claimed no houses are pre-purchased anywhere else.

You are also welcome to post evidence the sources I’ve used are incorrect. Ad hominem fallacy is not an argument.

I’m uninterested in unsubstantiated opinions and fallacy. I’ve posted evidence to support my posts. I suggest if you disagree you post evidence of your own.

 

A very poor comparison.

 

Is China's 40-year experiment with the West over? | DW Business

Is China's experiment with working with the West finally over? In 1979, Beijing opened up to foreign trade and welcomed US and European investment. More than four decades later, is it once again turning away from the West? To discuss a rollercoaster of trade relations we're joined by Anne Stevenson-Yang, who spent a quarter of a century working in China as an industry analyst and trade advocate and has just published a book about her experiences.​

A very interesting interview. Anne clearly explains a lot of what has happened and is currently happening in CHYNA.

 

Communist China imports about 85% of its energy and around 80% of the inputs needed to grow food. If they ever cross the west, say by invading Taiwan and starting a war, then they will deindustrialize, have mass famine, and then the lights will go out... All in less than a year.