re: China Makes Preparations for Evergrande’s Demise; prepare for a ‘possible storm’

It would severely impact exporters and importers, but the have the political will and power to make it happen. The Weimar had neither of those powers. They were just caught up in a bigger and impossible to control situation.

The scope of the Chinese RE issue is unprecedented

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The scope of the Chinese RE issue is unprecedented

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In 2007-2008, the US had a lot of foreclosures and home builders (especially production builders) ended up with a lot of inventory for a while. Some neighborhoods saw more problems than others (especially in Florida and Nevada), and a lot of people lost their jobs. That spread to other parts of the economy by 2009-2010 and well beyond our borders.

China has entire ghost cities that are brand new without anyone to consume the housing supply. Literally thousands of mid and high rise buildings without any tenants. Many of these are in varying stages of completion when construction was halted. This is far worse than what we dealt with 10-15 years ago. This is "capitalistic" investment dollars that are driven and "directed" by the state to build out entire cities in anticipation for demand that doesn't currently exist.

The US definitely over expands its urban and suburban boundaries in ways that reduce focus and appeal of the inner cities and creates lopsided demand for public services. But at least our suburban sprawl problems are centered around a preexisting urban jobs center.

What China did was absolutely nuts and completely batshit. They thought that if you build the housing in the middle of an agricultural field the demand, wealth, and jobs would follow. The problem is that anytime there is a softening of demand for whatever garbage China manufacturers are peddling at the time, they are less able to fill these housing units with real people. The scale of this frick up is nothing like we've ever seen here in the US.

You've seen abandoned and foreclosed homes in the US and Canada. You haven't seen entire ghost cities like the ones that dot China:






They can bail out Evergrande to appease foreign investors but set the stage for more bail outs and create the expectation that they intervene in any RE failure.

They can let Evergrande fail and screw over foreign investors in particular, driving that money into other markets like Europe, Canada, the US, and possibly India.

They are in a pickle. And they deserve it for what they put the world through in the past 18 months. frick them. I hope their citizens make it through this without being hurt too badly, but I sincerely hope China's economy tanks because of this and they rebel against their leadership.

Right now they think there's limited exposure to US institutional investors. Hopefully that's true.