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Can China just not let Evergrande fail? I'm assuming the debt is largely held in China, the buildings are in China, and debt holders who expected to be able to

Can China just not let Evergrande fail? I'm assuming the debt is largely held in China, the buildings are in China, and debt holders who expected to be able to get their money back are going to be disappointed but in an authoritarian government can you just force people to take the loss without letting that loss transmit to the larger economy?

spywaregorilla 5y ago
It's not just evergrande, it's all property developers pretty much. It's a real estate bubble popping when an immense portion of wealth and growth is in real estate.
- throwaway1777 5y ago
  Yes, much higher portion of wealth is in real estate in China than other countries, this is key to understanding the problem. Real estate is basically a savings account for many people.
IMSAI8080 5y ago
A lot of it is tied in with local government. The central Chinese government inadequately funds local governments. The local governments close the funding gap by selling/leasing land to developers (often kicking citizens off their land without proper compensation). Chinese citizens buy the properties due to a number of cultural and financial factors. There is not much else to invest in. Savings interest rates are very low. Chinese citizens often distrust the local stock market due to corruption issues and shared memory of previous crashes. Ordinary Chinese citizens are not permitted to invest overseas. Local property is the only reasonable investment to many. Many of these properties are never even lived in. However Chinese citizens are going to stop buying eventually as property prices are already well into greater fool territory. When that happens, local government will be in trouble.
- rasz 5y ago
  >Chinese citizens buy the properties not so fast, they buy 70-year leases
  - IMSAI8080 5y ago
    Sometimes as short as 20 I believe, although 70 is common. They do own the building, but yes the land is always on leasehold terms I believe. Will the government renew it? They say yes, but ...
samstave 5y ago
YEAH! Those chinese amateurs should do what we do in the USA ; just print more money and bail them out, and let their competitors acquire the company for pennies on the dollar after our government employees have had the opportunity to let all the people in their family know that trillions in bailouts is n the way -- oh yeah, and dont forget to setup an LLC in your spouses name to slurp off such bailout funds as well. (This seriously happened BTW, if you dont recall)

spywaregorilla 5y ago

It's not just evergrande, it's all property developers pretty much. It's a real estate bubble popping when an immense portion of wealth and growth is in real estate.

throwaway1777 5y ago
Yes, much higher portion of wealth is in real estate in China than other countries, this is key to understanding the problem. Real estate is basically a savings account for many people.

IMSAI8080 5y ago

A lot of it is tied in with local government. The central Chinese government inadequately funds local governments. The local governments close the funding gap by selling/leasing land to developers (often kicking citizens off their land without proper compensation). Chinese citizens buy the properties due to a number of cultural and financial factors. There is not much else to invest in. Savings interest rates are very low. Chinese citizens often distrust the local stock market due to corruption issues and shared memory of previous crashes. Ordinary Chinese citizens are not permitted to invest overseas. Local property is the only reasonable investment to many. Many of these properties are never even lived in. However Chinese citizens are going to stop buying eventually as property prices are already well into greater fool territory. When that happens, local government will be in trouble.

rasz 5y ago
>Chinese citizens buy the properties not so fast, they buy 70-year leases
- IMSAI8080 5y ago
  Sometimes as short as 20 I believe, although 70 is common. They do own the building, but yes the land is always on leasehold terms I believe. Will the government renew it? They say yes, but ...

samstave 5y ago

YEAH! Those chinese amateurs should do what we do in the USA ; just print more money and bail them out, and let their competitors acquire the company for pennies on the dollar after our government employees have had the opportunity to let all the people in their family know that trillions in bailouts is n the way -- oh yeah, and dont forget to setup an LLC in your spouses name to slurp off such bailout funds as well. (This seriously happened BTW, if you dont recall)