When playing word association with China’s economy, two terms that do not come to mind, and absolutely should not, are rock solid and sustainable. Instead, it’s more like paper mache and Ponzi schemes. Known for enormous ghosts cities and toppling, shoddy tofu-dreg construction, communist-controlled mainland spreads its sprawling, zombie-like tentacles in a ghoulish, global grab. As the oriental house of cards crumbles, Los Angeles is left with the remnants of a Gòngchǎn zhǔyì zhōngguó rén style ghost building, lurking in an already spooked DTLA real estate market.
You might think our housing market here in the states is wild. However, nothing matches China’s impending catastrophe. Not only have real estate prices been soaring, but real estate makes up nearly 30% of GDP, compared with 19% for the U.S. in its housing bubble. Worse, housing makes up 78% of Chinese assets, compared with 35% for the U.S. One commentator pointed out that the Chinese tried to have a stock market, but it collapsed under the same issues that threatened their housing bubble. For lack of western-style needs, people in China invest all their eggs in one basket, real estate.
The dominos are starting to fall. Several top 100 real estate companies in China are beginning to default on their loans. Even Evergrande, a leading ten real estate class company, is stumbling in a spiral of collapse.
The shadow spreads to building projects like Oceanwide Plaza in Los Angeles and Oceanwide Center in San Francisco. Weeds flourish on the languishing construction sites. Are we looking at a grande monument or graveyard? On the precipice, will these flat-lined behemoths be miraculously revived, or will they decay into mere remnants of what could have been? The wisest of investors remind us that blood on the streets can be a beautiful thing. Where there is confusion and fear, there is potential for profit as scurrying cowards leave heaping wads of money on the table. These U.S. projects have real merit and value for the right investors to pick up.
Back in China, only the government can sell property from local cities to the national government. There is money to be made, and land prices have steadily increased over the last 20 years. Speculators have never seen a down market for decades. In a country where salaries are around $12,000 a year, small apartments sell for 1 million. Not even a real apartment, but only the promise of a flat that has not even been built yet. Whole generations of families are pooling all their resources on speculation that is about to crash on a massive scale. Bankruptcy business closure, unemployment, debt default, western banks dropping support for Chinese bonds valued in dollars will put the final nail in the stock market purge of Chinese assets. Economists and billionaires agree that the end is nigh for the Renimbi and the dollar, as the frightening specter of runaway inflation, out-of-control exchange rates, deadly currency devaluations, and perhaps even apocalyptic global economic collapse loom. | COMMENT #Evergrande #ponzisceme
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