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This update is brought to you by a question from Pete from Shawnee Mission.
There are all those ghost cities sitting mostly vacant. Who do they belong to? The banks or the state or private investors? If the state, it might be time to start moving the bankrupt citizens into those buildings. (Assuming they are livable and safe and actually have water available, and electricity, and places that sell food.)
The individual units that make up the empty cities belong to the individual investors. You need to remember that the vast majority of these units were purchased as just that, investments. They weren't meant to be lived in by the buyers. Real Estate was the only investment opportunity left open to the people by the CCP, so that's where they put their retirement funds.
The vast majority of these units are either not livable, do not have utilities, are not near transportation/shopping, aren't where people want to live, or all of the above. The people are bankrupt because with the downturn in the economy, they can't afford to continue, or start, making payments. This is shifting the problem to the banks. (More on this below.)
The Housing system works VERY differently in the PRC than in the US. Here the buyer gives the a deposit. The builder takes out a construction loan to cover the difference in what he needs to purchase materials and pay labor. He gets his profit and repays the construction loan at closing. The buyer has a check to insure the quality of the materials and labor. The buyer is motivated to close so they don't lose their deposit. The builder is motivated to do a good job since if the building is crap, the buyer doesn't close and the builder is stuck. Everything is secured by real assets and everyone has an interest in performing as they have promised. This is not the case in the PRC.
In the PRC, the buyer gets a loan and starts paying for the house/apartment before construction ever starts. If the builder doesn't finish the job or the construction is Tofu Dreg, the buyer is still stuck with the mortgage.
Local governments are complicit in the process. They get a large portion of their operating revenue from land sales to builders. The national government gets significant tax revenue as well.
The Housing Sector makes up roughly twice the proportion of the Chinese economy as the US economy. It has been the engine driving the industrialization of the PRC. The biggest problem with industrialization is that a country only gets to do it ONCE and when you're done, you're done. The PRC is DONE.
Back to the banks. As the number of defaults due to a slowing economy increases, the banks are getting squeezed. They can foreclose on the non-performing loans and attempt to recover something by selling the property on the open market. There are two problems with this. The first is that if they foreclose they have to remove the loan from their assets. The second is that the second-hand market has collapsed nationwide with asking prices continuing to fall. This conundrum is leading to the failure of a large number of rural and local banks nationwide. These are the very banks necessary to provide the loans that keeps the Chinese housing market going.
This problem is Excedrin Headache #52 for the CCP. The Third Law of Economics says, "You can't do just one thing." Everything you do affects something else. A change that may fix one problem might make three others worse. Anything they do is likely to make something(s) worse. Their analysis paralysis is leading to the Sum of All Fears for the CCP, social unrest.
Everything that makes the PRC the PRC ties directly back to the Klepto-Oligarchy that is the CCP. Everything they do is focused on maintaining the social stability that allows them to hold onto the power that permits their corruption. Just now, it sucks to be them.
SpyNavy
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)