[LonePalm]

A "Broken China" Update.

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Greetings all. It has been nice to hear in the news much of what I have been telling you about the Chinese economy over the past three months. Today's update deals only with the PRC economy. On with the show.

Item Only:
October's official economic statistics are out. Excepting Real Estate, the numbers were mixed. Not great but not too bad either. Unfortunately you can't just ignore 30% of your economy. That's the good news for the CCP.

Now for the bad news. The numbers from the Real Estate sector continue to be abysmal. The largest builder in the PRC, Country Garden, reported sales were DOWN 81% year-on-year. Ouch. Nationally, new starts are down 21% YoY. Worse, new home prices have continues their slump after a brief bump in late August & September. Completions are also down but not as badly. Nationally, housing resales are down ~20%. These are NOT good signs for the overall economy.

Then there is the ugly news. The Japanese Investment firm, Nomura, operating out of Shanghai, estimates that there are ~20 million units of un-constructed and/or delayed start pre-sold homes. Roughly $500B worth of capital will be needed to complete these units. They wrote, "In our view, amid the collapsing property sector and and widespread credit fallout among property developers, home buyers might get increasingly impatient while waiting for the delivery of their purchased new homes. At some point next year, the issue of home delivery could turn into a social issue and endanger social stability, and Beijing may eventually need to significantly ramp up policy support."

They continued, "We see this as the key to restoring the confidence in the property sector and economy. Assuming 20% volume growth (I think they are overly optomistic - LP) in new home completions for the current year, developers will only manage to deliver 48% of the homes sold between 2015 and 2020, leaving 52% still subject to delays."

Reread that last line. Read it again. Builders will only manage to deliver less than half of already paid for homes sold between 2015 and 2020? This is unbelievably shoddy by western standards. Had the PRC used the western standard where the home isn't paid for until it is delivered, they wouldn't be in this situation. They also wouldn't have had the all the employment and economic stimulus that they have enjoyed over the past 40 years.

Remember, in China you don't show your business plan to get a loan. You show your employment plan. That is, you show how many jobs your project will create or maintain. For the CCP, EVERYTHING is about social stability or the avoidance of instability. I don't know the CCP is going to get out of this but you can bet it is keeping more than a few from getting all the sleep they want.

WWG1WGA

Garde la Foi, mes amis! Nous nous sommes les sauveurs de la République! Maintenant et Toujours!
(Keep the Faith, my friends! We are the saviors of the Republic! Now and Forever!)
LonePalm, le Républicain du verre cassé (The Broken Glass Republican)

[bert]

Great analysis. I will argue there is however a problem.

The numbers.

I have come to the conclusion that the Chinese economy is in much greater peril than is stated. I disbelieve all numbers related to the Chinese economy that are official

There is no way there is growth in the economy for 2023

There is method to the madness.

Xi has to destroy all aspects of the economy in order to totally rebuild a completely to the bone communist society. Rather than agricultural communes, the new communism will be based on corporate and industrial CCP organizations.

[LittleLinda]

Thank you for the update, LonePalm. It sounds like the CCP has to make a housing bailout in order to maintain social order. I liked the Clint Eastwood reference, BTW.

[outinyellowdogcountry]

Interesting. Are they counting on Biden mailing them out with green energy folly? Are those businessmen who paid $40,000 to dive with Xi coming to the rescue? Xi was greeted as a conquering hero. May be and all the commies in US reap the financial reward they deserve.

[Disestablishmentarian]

there are ~20 million units of un-constructed and/or delayed start pre-sold homes. Roughly $500B worth of capital will be needed to complete these units.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

So they bankrupt (or CCP equivalent) the builders and those who paid in advance are SOL.

Painful...but enough to end the regime of CCP?

If this fiasco were taking place the U.S., you would assume major banking institutions to be at risk. But China's central bank is a department of the government and is required to implement the policies of the CCP. So the only market discipline is flight of capital out of the country.

As a general rule, entrenched governments are not overthrown unless lots of people, including government/military employees, start going hungry. (This spelled the end of USSR.)