China's housing minister says real estate developers must go bankrupt if necessary
China's housing minister says real estate developers must go bankrupt if necessary
China's struggling property developers won't be getting a major bailout, authorities indicated, warning that those who "harm the interests of the masses" will be punished.
Those silly commies don't understand that you have to bail out capitalists when they fail.
China need to up their can-kicking game
Oh the horrors of billionaires not getting their treats 😢
Based China
It's actually quite funny how people foresaw the downfall of the Chinese economy following Evergrande, and it just kinda carried on as normal because the Chinese govt refused to bail them out.
No doubt some people are gonna get burned by that policy too, but they made the right choice by not rewarding a company that clearly had significant financial management issues.
Meanwhile here in italy when a major company fails and goes bankrupt because of shitty management, corruption and greed, we first "save" it with public funds, then sell it to someone else to profit off of it
A massive corporation going out of business sucks in the short term: people lose their jobs, among other financial woes. But if you keep bailing out failing corporations, you harm your economy in the long run because you're keeping a company artificially on life support using budget funds. The company will continue to fail and lose money, setting your country back years in terms of productivity and innovation, and your economy will fold inwards.
Not only that company but any other one is going to be incentivized to be irresponsible with their accounting and financial practices. What's going to happen if Google or Microsoft broke? Are they going to be rescued too?
Property developers in China, unlike banks in the US, are not the backstop of the economy. They are not too big to fall: it's just that their distressed assets need to be managed to minimize losses to their customers.
General Motors isn't the backstop of the economy and they were rescued too.
Normalize not bailing out failing big businesses, hope we can bring that custom over here.
Iceland got back on its feet after 2008 with a quickness because they jailed a bunch of bankers.
God I wish that were us
The commies can't keep getting away with ... checks notes ... running a free market!
watch market socialism with a government aggressively enforcing a strict bounded free market actually do capitalism better then capitalism
Common China W
“We will scale up the building and supply of government-subsidized housing and improve the basic systems for commodity housing to meet people’s essential need for a home to live in and their different demands for better housing,” - but what about the profit motive?
If you want privatized gains, you must accept privatized losses. No risk, no reward.
Unlike U.S. bailing out "too big to fail", China says "fuck you - we keep the tax dollars for us.".
Near perfect capitalistic communism as is possible.
Wow, actual Moral Hazard?!
I'm sure there is a lot more nuance and context here that I don't know about, but at face value that's a pretty cool solution and I like it. The question is: how much of these developments were greenlit by government officials who are now refusing to foot the bills?
It sounds good because it sounds like the developers are the ones getting fucked over. But that's not really the case. They already made bank.
Chinas real estate development sector is mostly funded by pre-selling future projects. So the people who bought a unit that now never will be built are the ones truly getting fucked over. And while some of these people are other rich people planning on renting out these units, a big part are just regular people. Only about 25% of the population in China are renting. In some cities the percentage is higher but even in Shanghai and Beijing it's only around 35%.
So a lot of the people who are getting fucked over by this are people who bought their own home that now will never be finished. On the bright side they probably haven't paid the full amount yet but for many their entire lifesaving are still gone and saving up enough money to buy a new home will take a long time.
Sure the developers may lose a lot of net worth because their company isn't worth anything anymore. But they still have way more assets in their possession then they need.
That's a very thoughtful in depth response. It honestly confuses me to no end that the developers can somehow not afford to complete the projects but were also allowed to sell the properties beforehand. That makes no sense, if I knew Chinese I would be fact checking those statements. On the other hand, such scams rarely do make any sense in retrospect.
how much of these developments were greenlit by government officials who are now refusing to foot the bills?
By that logic, most U.S real estate companies like Blackrock and Freddie Mae would be greenlit, could you be more specific...
If we just mean which ones were state-owned (because "privatized gains, privatized losses" as one said), not much
According to even "China collapser" Michael Pettis:
https://twitter.com/michaelxpettis/status/1610265849528717318/photo/1Then again, it's Caixin, so you can double-check...
Yes but can they please do this without leaving half finished skyscrapers in other countries? The situation in LA kind of sucks now that the city has to spend millions cleaning it up (supposedly sending the bill to a bankrupt Chinese developer, as if that'll work).
China has said they are going to take over projects under construction to finish them, which is good.
However, China still has to deal with a property glut, an elderly population who mainly used real estate to save for retirement, and local governments who needed real estate development to fund their budgets.
China is going to have to spend significant parts of its surplus dealing with this.
They don't "have to" clean up the totally innocuous graffiti
This is true. It's become a bit of a tourist attraction.
The value of the property has to be greater than the bill though, right?
No, and that's the problem. Ever since Covid, people are leaving major cities and moving to more affordable locations. This is largely due to this new work from home culture. Thus, a lot of these grand skyscraper projects are falling apart globally, the news just likes to focus on China, which in fairness is the largest failure of all the nations.
It's also important to note that while there is an abandoned skyscraper by a Chinese developer in LA, there are also abandoned skyscrapers in NYC and SF that has nothing to do with China. It's just a bad market for new buildings since people are leaving cities.
Of the finished property, probably. A property with a giant, abandoned project on it isn't worth nearly as much.
waow
Y’all are dancing on this, but if they go through with it, this is going to cause a run of panic that will wipe out the savings of hundreds of millions of people.
It would in the west, in China they do a controlled crash, i mean it's already happened, one of their biggest housing companies already crashed and it did not caused anything except rise in home ownership among the people.
There's a high percentage of Chinese workers that invested their savings in real estate instead of having a pension.
And there's no welfare*, which means a lot of people who will be left on the street when they are too old to work.*After a complain, I did some research so I can provide enough clarity on my statement:
- A new pensions system was built on top of the previous communist system (1986~1990s), then in 2004 the gov added enterprise annuities and finally, an IRA system was launched.
This last part was launched in 2022, which finally covered about 1.05 billion people. - There is though a difference in which plan can someone join, depending on their residence permit (either rural or urban).
The residence permit doesn't have a link to where you live, so a rural hukou won't become an urban hukou just for moving to the city. - Why does this matter? Well, an urban hukou will get about $461 US dollaridoos, while the Old-Age Insurance for Urban and Rural Residents plan (entirely used for rural residence permit holders and unsalaried urbant residents), it's about $25 US dollars and a smile.
The why enterprise annuities didn't work (0.25% of companies enrolled) is a very complex one but let's say is mostly due to the abnormally high statutory pension contribution rate.
So up until 2022, a little more than 500 million people had few options for extra savings beyond those $25 dollars/person, and that was real estate (you know, the thing that always goes up).
With IRAs now, and a possible conversion from the two main basic pension plans into a centralized one, it's possible newer generations will have a foothold for a safer savings method, however there are several challenges on the horizon:
- All the economic turmoil of COVID-19, foreign firms moving out, pandemic lockdowns, etc.. is making it harder to strengthen the pension system.
- Demographic issues and high youth unemployment.
- Runs on small banks.
- Recent cuts on local health care benefits.
- The statutory pension contribution rate was lowered, but is still about 16% Iirc. This means though the pension bags are getting 4% less full every year.
Altogether this could very well be a ticking time bomb.
- A new pensions system was built on top of the previous communist system (1986~1990s), then in 2004 the gov added enterprise annuities and finally, an IRA system was launched.
Evergrande already went bankrupt in 2021 and the general population in China have been mostly shielded from the damage (except the poor billionaires though 😢)
After 2008 they're gambling, not investing.
wipe out the savings
It's zero sum to the population. Every dollar lost by an investor is a dollar saved by a new family buying a home.
I dont care about investors when their investing in real estate has caused housing to skyrocket in price and making renting the only option for many people, myself included, while at the same time those same people will rent out at astronomical rates making many of us live more than paycheck to paycheck.
American developers need to go bankrupt the same way if they won't make accommodations affordable
