7 ms·

So I'm doing an MBA right now. Yeah, I know, I know. Anyway, it's a world-ranked program, located in Hong Kong. I will say that I actually have learned a lot

by PakG1 7y ago

So I'm doing an MBA right now. Yeah, I know, I know. Anyway, it's a world-ranked program, located in Hong Kong. I will say that I actually have learned a lot, if that makes the below easier to believe. One of my classmates is a senior finance manager or something for a Chinese real estate company. Just finished a macro economics class where the professor identified various issues and risks around the world and particularly identified corporate debt and real estate prices (among other things) as being a really big risk in China. He also happens to get invited to advise the top of the top levels of the Chinese government on their economic planning, so he very much has a horse in this race. So my real estate finance manager classmate objected to real estate prices being a risk. She told the professor in front of the class that if things ever get bad, the Chinese government will step in and take care of everyone. This prof advises the government about their economic risks and she's telling him there's no risk. I have no idea what to think anymore. The world is crazy.

onlyrealcuzzo 7y ago
If Kyle Bass is right about China's twin deficit: If oil prices stay above $60 OR the U.S. keeps tariffs on China OR there is a global slowdown: Chinese (and especially Hong Kong) real estate is in for a really bad time. I want to point out, this isn't doom and gloom. Although China has a 90%! home ownership rate, prices could collapse 90% (they won't), and it would only affect speculators and people who bought their first home in the last 5 years (almost no one. No ordinary person can afford a first home). See the 45 minute interview here: https://www.realvision.com/tv/shows/interviews/videos/chinas-currency-cliff https://www.realvision.com/tv/shows/interviews/videos/chinas...
- adventured 7y ago
  > prices could collapse 90% (they won't), and it would only affect speculators and people who bought their first home in the last 5 years How do you arrive at that claim? ~78% of all household assets in urban China are held in residential housing ownership. A 90% housing price collapse would be beyond catastrophic to China's economy and household wealth across the board. In rural China, residential housing values represent ~65% of household wealth. China's household assets being so extremely concentrated to housing is unique among major economies. In the US, the residential real-estate market represents closer to 35% of household assets (in the UK it's around 50%). Financial assets are only 12% of urban Chinese household assets, compared to 43% in the US. China can't afford anything to go wrong in their residential housing market, much less a 90% price decline.
  - onlyrealcuzzo 7y ago
    Look at Chinese imports / exports: https://globaledge.msu.edu/countries/china/tradestats https://globaledge.msu.edu/countries/china/tradestats . If the Yuan collapses, that's good for exports, which is good for jobs. If house prices collapse, it only matters if you're trying to sell your house. You won't need to sell your house if you have a job. It's only bad if you're leveraged on real estate and dependent on prices increasing -- a speculator. You know who is the most leveraged on Chinese real estate? Local governments and the mega rich. The vast majority of Chinese spending is on domestic goods and real estate. If those things become cheaper, that's good for the average Chinese person (and for importers or Chinese goods -- I.E. everyone else in the world). China's growing dependence on imported oil could be problematic. But they're being really smart about their unbelievably fast growing electric bus fleet. It is important to note that a huge portion of Chinese jobs are related to real estate / construction. If the market collapses, a lot of those jobs will go away. But these aren't particularly high paid or specialized jobs. The growth of factory jobs should absorb them. The only thing that would stop that is if the U.S. increases tariffs farther. I think it'd be more like Dot Com in the U.S. Stocks dropped like a rock, but the average person in the U.S. hardly noticed. I don't think it'd be like 07 -- even though it seems more related.
  - rconti 7y ago
    Don't most homes have very large down payments, so the risk is lower? Or is this outdated thinking in the age of 3rd and 4th "investment" homes?
daemin 7y ago
Conspiracy idea: The Chinese government wants everyone to default on loans because then they'll get to claim ownership of all the assets. So everything will become state owned once again, communist dream?
- em-bee 7y ago
  ownership in china is time limited anyways, i think to 75 years. at that point properties go back to the government no matter what. so this wouldn't make much difference
  - kyllo 7y ago
    More likely is that they simply extend the term.
  - vkou 7y ago
    What's the difference between owning a 75 year lease on a property, and owning a property, where every year, you have to pay a ~1.33% property tax on the value of said property? It's not like China is the first country in the world that has fixed-year leases on housing. I know for a fact that you can find such properties in both Canada, and the United Kingdom.
    - em-bee 7y ago
      the main concern i'd have is that they are looked as being the same without people being aware that there is a difference. people are saying stuff like: buying an apartment in the US or in singapore is better than buying one in china, not realizing that they are effectively different models. calling it "ownership of a longterm lease" is a very good name that much better describes the reality. (it's the first time i see that term, but it just makes sense)
  - daemin 7y ago
    Is that on the land or on each individual property? Does it get automatically renewed when the property gets transferred (sold or inherited)? I could imagine there being a price drop on property nearing its expiration, so much so that there's no point in maintaining it if it just goes back to the government.
baybal2 7y ago
> real estate prices being a risk. Very much it, real estate is a collateral in great many gigantic debt packages. A lot of Chinese multinationals have real estate wings exactly for this reason — providing a lot of collateral for loans and trust bonds. The speculation is that a lot of real estate collateral is gigantically overvalued or simply does not exist
siberianbear 7y ago
This story reminds me of a quote from Upton Sinclair: "It is difficult to get a man to understand something, when his salary depends on his not understanding it." I've met many people in my life just like your classmate. They're especially common in the real estate industry. You're right, the world is crazy.
- yeahitslikethat 7y ago
  It helps me very much to read that quote right now. Thank you for posting it. When making my cases at work, I need to frame the talking points from the perspective of how choosing my decision will benefit the person's salary. I don't know if I like that realization, but it seems logical. It doesn't feel good to manipulate people like that. I feel like they should know what's best for them and decide with the facts. But maybe they don't know better for themselves or their priorities in life are different. To think about programming people like I think about programming computers feels dehumanizing. Like I shouldn't be doing it. Like it's wrong to take someone's freewill away.
- ethbro 7y ago
  If everyone agrees that crazy is sane, then the mass delusion can stick until something forces it to be reevaluated. That's essentially the definition of a bubble cycle: a mass delusion, eventually suddenly punctured by the imposition of reality.
AFascistWorld 7y ago
That's a commonly held belief and the underlying assurance for unrelenting speculators that the CCP has to prop up the property prices forever, since Chinese put majority of their wealth in these absurdly overpriced condos and it substantially absorbs inflation, a collapse will trigger the party's doomsday: popular revolts. It's a dangerous game everyone is forced to play. The CCP dug its own grave here like many other things. It monopolized land and dictates/manipulates prices, hijacked the people and economy using the housing market, in turn it also assumed the responsibility. Chinese are protesting and vandalizing when prices fall. https://www.google.com/search?q=%E7%A0%B8%E5%94%AE%E6%A5%BC%E9%83%A8&source=lnms&tbm=isch https://www.google.com/search?q=%E7%A0%B8%E5%94%AE%E6%A5%BC%...
- yeahitslikethat 7y ago
  What about the over priced condos they are buying overseas? What happens when those prices fall too? Serious question.
  - AnimalMuppet 7y ago
    If I'm in China, and my money for taking care of my parents is in real estate, and real estate falls, and I can't take care of my parents, I am shamed. That's a really big deal in Chinese culture. And I'm mad at the government of China for this. If I'm in China, and my money for escaping from China is in Vancouver real estate, and Vancouver real estate falls, then if I ever decide to escape China, I may have to work rather than be independently wealthy. That's not as big a deal as not being able to take care of my parents. And my anger is directed at Canada, not China, so it's less socially explosive. (Less explosive even to Canada - it wasn't their job to make it easy for me to escape from China.) Or so it seems to me, a non-Chinese (and even non-Canadian)...
    - nostrademons 7y ago
      It's interesting to think about this worldwide in terms of dependency ratios. Right now, there is a working-people boom globally, as most of the post-1950 baby boom is in their working years, national barriers to trade have fallen down, and the huge post-1985 population boom is entering the workforce. A lot of people are working, and there are relatively few old people to take care of. This has led to a global savings glut - people are financially saving some of their earnings to take care of their eventual old age. This situation will not last forever - the global baby boomers will enter retirement, life expectancy is increasing, and the generation after Millenials (and their global equivalents) is tiny, with fertility falling off a cliff even in developing nations. That means fewer working people supporting more retirees. Technology has been stubbornly ineffective at increasing elder-care productivity, even as it's been very effective at increasing life expectancy. No financial engineering in the world can paper that over - regardless of how many dollars are injected into the economy, how much people have in their 401k, how much is in their bank account, and how many homes they own, there are still only a set number of people available to care for elders. Additional savings just means the price of elder-care will rise to soak up all the savings, and the price of assets will fall as people rush to sell them to afford the increasing price of elder-care. The result is potentially explosive. People who assumed they have enough set aside for a comfortable retirement will find that a.) a "comfortable retirement" becomes increasingly more expensive and b.) the value of those assets is suddenly falling. There will be widespread calls for the government to fix things, but there's nothing within the government's power to fix: it still takes a certain amount of labor to help your grandparents out of bed, change their bedpans, bathe them, measure their medications, etc. So the chance of social unrest becomes dramatically higher, which means that maybe that escape plan of moving to Vancouver is pretty important. That just exports the problem, though, and destabilizes other countries.
AJ007 7y ago
That kind of logic is necessary for asset price bubbles. The downside has to be minimized, and the upside remain significant. In reality, the downsides are huge and by the end, just doubling prices is incredibly hard. The best I can tell is the Chinese debt cycle is well into the period where the loans are being taken out almost solely to pay off interest on existing debt. For Q1 2019, the debt increase was 9% of 2018 GDP (somewhere from Bloomberg.) That is a startling number. I presume that is private & public debt, but I'm not sure. Presuming some sort of very large scale bailout occurs, and the debt is monetized, the renminbi should drop in value against other currencies and then China should experience inflation. That is the theory, at least. That isn't what happened with Japan. However, if you look at Japan, they are still fighting what happened during the 1980s. Per 2018 numbers, the Bank of Japan owns 77 1/2 percent of Japanese ETFs. All kinds of other distortions have occurred, and Japan is a very and complex issue in itself. I don't think it is possible to predict what will happen. You can, to some extent, state that if X and Y happen then Z is impossible. Analysts are looking at Japan and wondering what similarities or indications of what direction China could head in. There is some hint, but the Chinese people are much poorer and the Chinese government is quite different than Japan. The Chinese government also has a very close example to retro-actively observe while other investment driven growth stories like Brazil were quite distant both geographically and culturally. The big unknown is, who is going to eat shit? Some big part or parts of the Chinese economy will. Who the government transfers the losses to determines what can and can not happen in the longer term. There is a very good possibility that this will end in a poof, and China will not see significant growth again for a very, very long time. A lot of the stories being told about China's tech leadership look very similar to Japan in the 1980s. China's population pyramid isn't great either. Their population will peak in about 10 years and then begin shrinking. Footnote: A lot of focus is on what direction prices go. A better focus would be on consumption power. When there is runaway inflation you can say, look the prices shot up I'm rich, but if your purchasing power dropped 90% you may be much poorer.
- ethbro 7y ago
  > The big unknown is, who is going to eat shit? Some big part or parts of the Chinese economy will. Who the government transfers the losses to determines what can and can not happen in the longer term. Based on recent history, as long as it's everyone except the PLA, the existing Chinese political system will survive. Mao was right about that much. Not that it isn't going to be extremely ugly. If you could afford it as a Chinese citizen, you'd have to be crazy not to be hedging personal wealth outside of China at the moment.
driven20 7y ago
Didn't the US do something similar in 2008? They step in and take care of the banks.
- Retric 7y ago
  “Chinese government will step in and take care of everyone” The US government very much did not do that. The US let a lot of banks fail and housing prices to collapse. They did save a few banks, and most bank customers. But, most of this was adding short term liquidity to the market and otherwise healthy organizations. PS: “Mark to market” https://en.m.wikipedia.org/wiki/Mark-to-market_accounting https://en.m.wikipedia.org/wiki/Mark-to-market_accounting is an important safeguard. But, it increases the short term risks of systemic collapse.
  - YjSe2GMQ 7y ago
    Not to mention that the Fed made a "profit" on the liquidity injection. "Profit" because central bank doesn't really care about anything like profit, but the point is everything was repaid. That being said, there's a widespread belief called "Greenspan put" or "Fed put": https://www.daytrading.com/fed-put https://www.daytrading.com/fed-put
    - ethbro 7y ago
      It's hard to imagine central banks not making a profit on liquidity injection. As long as they have a semi-accurate pulse on real asset values, as a lender of last resort they have the sole ability to buy assets at distressed values. Nobody else has the ability to take a bath as the market implodes and simply create new capital to buy things at less-than-face-value. You'd only expect things to go really bad if the Fed mispredicted actual values.
nostrademons 7y ago
Governments have a history of ignoring their academic advisors in the face of potential popular revolt. Falling asset prices have a history of causing popular revolt. The world is crazy. Best to build that into your models.
smallgovt 7y ago
I learned recently that all land in China is owned by the government. Citizens can only obtain short and long-term leases for the use of land. It's slightly tangential, but does anyone know how this affects real estate prices?
- swuecho 7y ago
  land has only one seller，monopoly. the real estate price in china is crazy.
inflatableDodo 7y ago
>I have no idea what to think anymore. The world is crazy. I suspect you might go far.
JumpCrisscross 7y ago
> I have no idea what to think anymore. The world is crazy. Here is the positive spin on the story. Defaults mean someone is taking pain for taking on too much leverage. That means relieving pressure from the system, which is–in the long-term–better for global stability than China trying to extend and pretend.
partiallypro 7y ago
The problem is that the longer the Chinese government steps in to absolve, tweak or undermine the market...the worse the market gets over time. It's like pushing on a string. Unfortunately recessions are necessary, asset prices sometimes need to come down because there is capital market misallocation. Unfortunately China is very hamfisted here and the longer the dance goes on the worse the potential outcome becomes. The Fed and western policies get a lot of flak for "too big to fail" but in the end, they still let them fail...just very softly and to prevent systemic shock. That's not the Chinese model at all.
apo 7y ago
> She told the professor in front of the class that if things ever get bad, the Chinese government will step in and take care of everyone. That's also the view in the US (government will step in to make losers whole), which explains why bubbles keep re-inflating.
eli_gottlieb 7y ago
Well, given how Western governments behaved when their private-sector real estate went into a bubble and caused a historic financial crash...
vfulco2 7y ago
They have a history of making debt disappear into a black hole (don't ask any questions), for an in-determinant workout period. She's not entirely wrong. Which makes me wonder, why do credit risk analysis at all?
deleted 7y ago
[deleted]

by PakG1 7y ago

onlyrealcuzzo 7y ago

If Kyle Bass is right about China's twin deficit: If oil prices stay above $60 OR the U.S. keeps tariffs on China OR there is a global slowdown: Chinese (and especially Hong Kong) real estate is in for a really bad time. I want to point out, this isn't doom and gloom. Although China has a 90%! home ownership rate, prices could collapse 90% (they won't), and it would only affect speculators and people who bought their first home in the last 5 years (almost no one. No ordinary person can afford a first home). See the 45 minute interview here: https://www.realvision.com/tv/shows/interviews/videos/chinas-currency-cliff https://www.realvision.com/tv/shows/interviews/videos/chinas...

adventured 7y ago
> prices could collapse 90% (they won't), and it would only affect speculators and people who bought their first home in the last 5 years How do you arrive at that claim? ~78% of all household assets in urban China are held in residential housing ownership. A 90% housing price collapse would be beyond catastrophic to China's economy and household wealth across the board. In rural China, residential housing values represent ~65% of household wealth. China's household assets being so extremely concentrated to housing is unique among major economies. In the US, the residential real-estate market represents closer to 35% of household assets (in the UK it's around 50%). Financial assets are only 12% of urban Chinese household assets, compared to 43% in the US. China can't afford anything to go wrong in their residential housing market, much less a 90% price decline.
- onlyrealcuzzo 7y ago
  Look at Chinese imports / exports: https://globaledge.msu.edu/countries/china/tradestats https://globaledge.msu.edu/countries/china/tradestats . If the Yuan collapses, that's good for exports, which is good for jobs. If house prices collapse, it only matters if you're trying to sell your house. You won't need to sell your house if you have a job. It's only bad if you're leveraged on real estate and dependent on prices increasing -- a speculator. You know who is the most leveraged on Chinese real estate? Local governments and the mega rich. The vast majority of Chinese spending is on domestic goods and real estate. If those things become cheaper, that's good for the average Chinese person (and for importers or Chinese goods -- I.E. everyone else in the world). China's growing dependence on imported oil could be problematic. But they're being really smart about their unbelievably fast growing electric bus fleet. It is important to note that a huge portion of Chinese jobs are related to real estate / construction. If the market collapses, a lot of those jobs will go away. But these aren't particularly high paid or specialized jobs. The growth of factory jobs should absorb them. The only thing that would stop that is if the U.S. increases tariffs farther. I think it'd be more like Dot Com in the U.S. Stocks dropped like a rock, but the average person in the U.S. hardly noticed. I don't think it'd be like 07 -- even though it seems more related.
- rconti 7y ago
  Don't most homes have very large down payments, so the risk is lower? Or is this outdated thinking in the age of 3rd and 4th "investment" homes?

daemin 7y ago

Conspiracy idea: The Chinese government wants everyone to default on loans because then they'll get to claim ownership of all the assets. So everything will become state owned once again, communist dream?

em-bee 7y ago
ownership in china is time limited anyways, i think to 75 years. at that point properties go back to the government no matter what. so this wouldn't make much difference
- kyllo 7y ago
  More likely is that they simply extend the term.
- vkou 7y ago
  What's the difference between owning a 75 year lease on a property, and owning a property, where every year, you have to pay a ~1.33% property tax on the value of said property? It's not like China is the first country in the world that has fixed-year leases on housing. I know for a fact that you can find such properties in both Canada, and the United Kingdom.
  - em-bee 7y ago
    the main concern i'd have is that they are looked as being the same without people being aware that there is a difference. people are saying stuff like: buying an apartment in the US or in singapore is better than buying one in china, not realizing that they are effectively different models. calling it "ownership of a longterm lease" is a very good name that much better describes the reality. (it's the first time i see that term, but it just makes sense)
- daemin 7y ago
  Is that on the land or on each individual property? Does it get automatically renewed when the property gets transferred (sold or inherited)? I could imagine there being a price drop on property nearing its expiration, so much so that there's no point in maintaining it if it just goes back to the government.

baybal2 7y ago

> real estate prices being a risk. Very much it, real estate is a collateral in great many gigantic debt packages. A lot of Chinese multinationals have real estate wings exactly for this reason — providing a lot of collateral for loans and trust bonds. The speculation is that a lot of real estate collateral is gigantically overvalued or simply does not exist

siberianbear 7y ago

This story reminds me of a quote from Upton Sinclair: "It is difficult to get a man to understand something, when his salary depends on his not understanding it." I've met many people in my life just like your classmate. They're especially common in the real estate industry. You're right, the world is crazy.

yeahitslikethat 7y ago
It helps me very much to read that quote right now. Thank you for posting it. When making my cases at work, I need to frame the talking points from the perspective of how choosing my decision will benefit the person's salary. I don't know if I like that realization, but it seems logical. It doesn't feel good to manipulate people like that. I feel like they should know what's best for them and decide with the facts. But maybe they don't know better for themselves or their priorities in life are different. To think about programming people like I think about programming computers feels dehumanizing. Like I shouldn't be doing it. Like it's wrong to take someone's freewill away.
ethbro 7y ago
If everyone agrees that crazy is sane, then the mass delusion can stick until something forces it to be reevaluated. That's essentially the definition of a bubble cycle: a mass delusion, eventually suddenly punctured by the imposition of reality.

AFascistWorld 7y ago

That's a commonly held belief and the underlying assurance for unrelenting speculators that the CCP has to prop up the property prices forever, since Chinese put majority of their wealth in these absurdly overpriced condos and it substantially absorbs inflation, a collapse will trigger the party's doomsday: popular revolts. It's a dangerous game everyone is forced to play. The CCP dug its own grave here like many other things. It monopolized land and dictates/manipulates prices, hijacked the people and economy using the housing market, in turn it also assumed the responsibility. Chinese are protesting and vandalizing when prices fall. https://www.google.com/search?q=%E7%A0%B8%E5%94%AE%E6%A5%BC%E9%83%A8&source=lnms&tbm=isch https://www.google.com/search?q=%E7%A0%B8%E5%94%AE%E6%A5%BC%...

yeahitslikethat 7y ago
What about the over priced condos they are buying overseas? What happens when those prices fall too? Serious question.
- AnimalMuppet 7y ago
  If I'm in China, and my money for taking care of my parents is in real estate, and real estate falls, and I can't take care of my parents, I am shamed. That's a really big deal in Chinese culture. And I'm mad at the government of China for this. If I'm in China, and my money for escaping from China is in Vancouver real estate, and Vancouver real estate falls, then if I ever decide to escape China, I may have to work rather than be independently wealthy. That's not as big a deal as not being able to take care of my parents. And my anger is directed at Canada, not China, so it's less socially explosive. (Less explosive even to Canada - it wasn't their job to make it easy for me to escape from China.) Or so it seems to me, a non-Chinese (and even non-Canadian)...
  - nostrademons 7y ago
    It's interesting to think about this worldwide in terms of dependency ratios. Right now, there is a working-people boom globally, as most of the post-1950 baby boom is in their working years, national barriers to trade have fallen down, and the huge post-1985 population boom is entering the workforce. A lot of people are working, and there are relatively few old people to take care of. This has led to a global savings glut - people are financially saving some of their earnings to take care of their eventual old age. This situation will not last forever - the global baby boomers will enter retirement, life expectancy is increasing, and the generation after Millenials (and their global equivalents) is tiny, with fertility falling off a cliff even in developing nations. That means fewer working people supporting more retirees. Technology has been stubbornly ineffective at increasing elder-care productivity, even as it's been very effective at increasing life expectancy. No financial engineering in the world can paper that over - regardless of how many dollars are injected into the economy, how much people have in their 401k, how much is in their bank account, and how many homes they own, there are still only a set number of people available to care for elders. Additional savings just means the price of elder-care will rise to soak up all the savings, and the price of assets will fall as people rush to sell them to afford the increasing price of elder-care. The result is potentially explosive. People who assumed they have enough set aside for a comfortable retirement will find that a.) a "comfortable retirement" becomes increasingly more expensive and b.) the value of those assets is suddenly falling. There will be widespread calls for the government to fix things, but there's nothing within the government's power to fix: it still takes a certain amount of labor to help your grandparents out of bed, change their bedpans, bathe them, measure their medications, etc. So the chance of social unrest becomes dramatically higher, which means that maybe that escape plan of moving to Vancouver is pretty important. That just exports the problem, though, and destabilizes other countries.

AJ007 7y ago

That kind of logic is necessary for asset price bubbles. The downside has to be minimized, and the upside remain significant. In reality, the downsides are huge and by the end, just doubling prices is incredibly hard. The best I can tell is the Chinese debt cycle is well into the period where the loans are being taken out almost solely to pay off interest on existing debt. For Q1 2019, the debt increase was 9% of 2018 GDP (somewhere from Bloomberg.) That is a startling number. I presume that is private & public debt, but I'm not sure. Presuming some sort of very large scale bailout occurs, and the debt is monetized, the renminbi should drop in value against other currencies and then China should experience inflation. That is the theory, at least. That isn't what happened with Japan. However, if you look at Japan, they are still fighting what happened during the 1980s. Per 2018 numbers, the Bank of Japan owns 77 1/2 percent of Japanese ETFs. All kinds of other distortions have occurred, and Japan is a very and complex issue in itself. I don't think it is possible to predict what will happen. You can, to some extent, state that if X and Y happen then Z is impossible. Analysts are looking at Japan and wondering what similarities or indications of what direction China could head in. There is some hint, but the Chinese people are much poorer and the Chinese government is quite different than Japan. The Chinese government also has a very close example to retro-actively observe while other investment driven growth stories like Brazil were quite distant both geographically and culturally. The big unknown is, who is going to eat shit? Some big part or parts of the Chinese economy will. Who the government transfers the losses to determines what can and can not happen in the longer term. There is a very good possibility that this will end in a poof, and China will not see significant growth again for a very, very long time. A lot of the stories being told about China's tech leadership look very similar to Japan in the 1980s. China's population pyramid isn't great either. Their population will peak in about 10 years and then begin shrinking. Footnote: A lot of focus is on what direction prices go. A better focus would be on consumption power. When there is runaway inflation you can say, look the prices shot up I'm rich, but if your purchasing power dropped 90% you may be much poorer.

ethbro 7y ago
> The big unknown is, who is going to eat shit? Some big part or parts of the Chinese economy will. Who the government transfers the losses to determines what can and can not happen in the longer term. Based on recent history, as long as it's everyone except the PLA, the existing Chinese political system will survive. Mao was right about that much. Not that it isn't going to be extremely ugly. If you could afford it as a Chinese citizen, you'd have to be crazy not to be hedging personal wealth outside of China at the moment.

driven20 7y ago

Didn't the US do something similar in 2008? They step in and take care of the banks.

Retric 7y ago
“Chinese government will step in and take care of everyone” The US government very much did not do that. The US let a lot of banks fail and housing prices to collapse. They did save a few banks, and most bank customers. But, most of this was adding short term liquidity to the market and otherwise healthy organizations. PS: “Mark to market” https://en.m.wikipedia.org/wiki/Mark-to-market_accounting https://en.m.wikipedia.org/wiki/Mark-to-market_accounting is an important safeguard. But, it increases the short term risks of systemic collapse.
- YjSe2GMQ 7y ago
  Not to mention that the Fed made a "profit" on the liquidity injection. "Profit" because central bank doesn't really care about anything like profit, but the point is everything was repaid. That being said, there's a widespread belief called "Greenspan put" or "Fed put": https://www.daytrading.com/fed-put https://www.daytrading.com/fed-put
  - ethbro 7y ago
    It's hard to imagine central banks not making a profit on liquidity injection. As long as they have a semi-accurate pulse on real asset values, as a lender of last resort they have the sole ability to buy assets at distressed values. Nobody else has the ability to take a bath as the market implodes and simply create new capital to buy things at less-than-face-value. You'd only expect things to go really bad if the Fed mispredicted actual values.

nostrademons 7y ago

Governments have a history of ignoring their academic advisors in the face of potential popular revolt. Falling asset prices have a history of causing popular revolt. The world is crazy. Best to build that into your models.

smallgovt 7y ago

I learned recently that all land in China is owned by the government. Citizens can only obtain short and long-term leases for the use of land. It's slightly tangential, but does anyone know how this affects real estate prices?

swuecho 7y ago
land has only one seller，monopoly. the real estate price in china is crazy.

inflatableDodo 7y ago

>I have no idea what to think anymore. The world is crazy. I suspect you might go far.

JumpCrisscross 7y ago

> I have no idea what to think anymore. The world is crazy. Here is the positive spin on the story. Defaults mean someone is taking pain for taking on too much leverage. That means relieving pressure from the system, which is–in the long-term–better for global stability than China trying to extend and pretend.

partiallypro 7y ago

The problem is that the longer the Chinese government steps in to absolve, tweak or undermine the market...the worse the market gets over time. It's like pushing on a string. Unfortunately recessions are necessary, asset prices sometimes need to come down because there is capital market misallocation. Unfortunately China is very hamfisted here and the longer the dance goes on the worse the potential outcome becomes. The Fed and western policies get a lot of flak for "too big to fail" but in the end, they still let them fail...just very softly and to prevent systemic shock. That's not the Chinese model at all.

apo 7y ago

> She told the professor in front of the class that if things ever get bad, the Chinese government will step in and take care of everyone. That's also the view in the US (government will step in to make losers whole), which explains why bubbles keep re-inflating.

eli_gottlieb 7y ago

Well, given how Western governments behaved when their private-sector real estate went into a bubble and caused a historic financial crash...

vfulco2 7y ago

They have a history of making debt disappear into a black hole (don't ask any questions), for an in-determinant workout period. She's not entirely wrong. Which makes me wonder, why do credit risk analysis at all?

deleted 7y ago

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