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Some of these companies have trillions in RMB on their balance sheets. I don't understand this sentence. It is nonsensical to use balance in this way. You w

• bakuninsbart 3y ago
  From a quick google Evergrande (officially) has 2.4 trillion Yuan in debt, and 1.7 trillion Yuan in assets. Assets seem to have lost more than 20% of their value since 2019. It is the largest one of the Chinese real estate developers, but there are a couple others that might break through the 1T Yuan mark.
  • blackoil 3y ago
    That is 90 billion USD shortfall. Assuming lenders will have to take some haircut the no. is big but not something that will break the economy!! am I missing some nos.?
    • bobthepanda 3y ago
      One is that apparently a bunch of suppliers and contractors for their projects have not been paid for a while, so those will default or go bankrupt as well, and cascade further down the economy. The other thing is that Evergrande sold mostly through presales so now there are all those paid for but unfinished apartment blocks.
    • deleted 3y ago
      [deleted]
    • OtherShrezzing 3y ago
      The lenders in the Chinese housing market are mostly Chinese citizens. In modern China, rather than buying a house, you buy a promise of a house, then the house builder builds it for you. The house builders though have these huge debts, and they've been using money from new purchases to construct their backlog of homes. The $90bn outstanding is $90bn in outstanding housing construction, not just abstract debts to banks which could be written off or bailed out. Citizens will need to continue paying their mortgages on houses that don't (and won't) exist, which will cause some civil disquiet. Construction companies are going to have a shortfall of $90bn worth of work in their pipelines, which will mean mass layoffs. Entire large towns will go unbuilt. Evergrande isn't the only one in this situation, it looks like a handful of large house-builders also have these uncompleted backlogs being paid for with new orders. The collapse of one might prompt the collapse of the others. As house-buyers become less confident that their house will ever exist, they'll stop buying new stock. When they stop buying new stock, the other house-builders collapse under the burden of their backlog of construction projects.
      • tremon 3y ago
        That sounds suspiciously like a pyramid scheme: the only thing financing the current construction are payments to new construction. How did they get into this situation? By continuously selling under cost, or perhaps by siphoning off profits?
        • NhanH 3y ago
          Land price keeps increasing caused this problem. You can just imagine land price to increase 50% YoY (hypothetical number) and you will understand the situation. Basically you can not have enough cash on hand to purchase the next piece of land for your development, but you want to always plan for the next step.
          • benterix 3y ago
            The first time it happens, you can call it a mistake. But second, third? Is int't it obvious that, seeing this trend, you should calculate the risk and factor in the land cost increase when pricing your offer?
  • misja111 3y ago
    > .. and 1.7 trillion Yuan in assets Note that this is the book value. Probably based on some valuation from years ago and only minimally adjusted, mean while property prices have crashed.
• hurril 3y ago
  Moral hazard and inflation. If I know that I will be bailed out with a certain probability, then my actual cost of capital is much lower (since I am not expected to pay the entire volume of interest.) For instance: why not make the investors whole again instead by giving them the "printed money" instead of going through the middle-man of propping up these failed giants?
  • ksey3 3y ago
    In the US sure, where its blasphemous to slit the throats of the leisure classes for their excesses. In China they made Jack Ma disappear. Through out history when it gets time for the Kings & Queens to waive the debt of the plebs away, cause they have nothing left to pay, the Rentier classes take the haircut. In the US the rentiers have owned the Kings & Queens for a long time. To the point where any American institution cant touch them. This is not the case in China. There will be mass disappearances and cullings (already have been).
    • anovikov 3y ago
      Well, start with the first 10, then remaining ones will emigrate and simply assign bounty for any head of CCP member based on the rank - until the Party is eliminated. How about that? Don't underestimate the money - it goes the long way.
      • ksey3 3y ago
        You think Jack Ma didnt try that?
        • anovikov 3y ago
          Still, human history shows us that money always wins. People have natural instinct to acquire wealth. No political regime has remained viable for a long time if it tried to go against this instinct. Authoritarianism works fine; in fact i am even in a bit of doubt about democracy being the better social order, in any case our empirical data to confirm that is insufficient - but even authoritarian society should exploit, rather that try to suppress, this basic motivator of the people. So far we can't see CCP making this mistake - which sort of confirms that Party has a healthy self-preservation instinct. Let's say, they are trying to do everything to avoid collapse of real estate prices because that will hit retirement savings of too many people, and they seem to accept lower rates of economic growth if that will be necessary to achieve that.
• jncfhnb 3y ago
  If you have trillions on the balance sheet, then you have trillions in assets, funded by either debt or equity. In this case clearly debt. It is confusing why you say “use balance this way” because it is a “balance sheet”. You can’t pull the word balance out individually.