Posted on 02/25/2025 8:44:17 PM PST by SeekAndFind
More signs have emerged testifying to the severity of China’s financial woes. Local governments seem to have become so cash-strapped that they have resorted to paying their bills with unfinished and unbought apartments left by the nation’s ongoing property crisis.
This kind of barter constitutes a slide back into the sort of primitive economics usually associated with third-world economies. It speaks to how far China has fallen and how much Beijing needs to do to get back on an acceptable development path.
The origins of these problems are reasonably straightforward and should be familiar to regular readers of this column. Beijing planted the seeds of this mess with years of excessive promotion for residential real estate development. In the early stages of China’s development, this emphasis was appropriate. Still, Beijing continued with easy financing terms and support from local governments for too long after the country had caught up with its housing needs.
Because of Beijing’s lavish support, developers could offer attractive deals to potential homebuyers, driving up purchases, while taking full advantage of the seemingly favorable situation by using debt to finance as much development as possible. At the same time, local governments, flush with revenues from booming land sales, also borrowed heavily to create as attractive a civic environment as possible.
At its height, real estate development in China rose to almost 25 percent of the economy. Since most developed economies seldom dedicate more than 5 percent of their gross domestic product to real estate development, the figure itself speaks to how far matters have gone.
In 2019, as Beijing’s planners began to realize how excessive residential development had become, they abruptly withdrew the earlier support. And since they gave little or no warning of the change, neither developers nor local governments had time to adjust.
Developers showed the damage first. They began to fail. The first signs of the unfolding disaster arrived in 2021 when the huge property developer Evergrande announced that it could not meet the equivalent of some $300 billion in obligations. A number of other such failures followed.
Not surprisingly, construction activity stalled, and so did the pace of homebuying. The financial system suffered from the volume of unpaid debt, especially since, at the same time as the developers were failing, Chinese households that had pre-purchased from property developers could no longer complete their payments and refused to fulfill their mortgage obligations. And because Beijing refused to implement policies to mitigate these financial strains, they only got worse.
As these problems festered, local governments, now denied most of the cash flow from land sales, found themselves unable to meet their obligations on the debts they had incurred during the boom years and also their civic obligations to their populations. Not only were lenders asked to wait, but local governments also held back on payments to contractors for all sorts of services, including utilities, garbage collection, street cleaning, and repair. In some cases, matters got so severe that civic employees—teachers, medical staff, police, and firefighters—had to wait for their pay.
In the absence of cash to pay their bills, developers and local governments have resorted to the only thing they have in abundance to pay their bills: unfinished and unoccupied apartments. Three examples should give a sense of what is happening.
Changji City, China, has discharged the equivalent of $25 million in unpaid gas bills to Xinjiang East Universe Gas with some 260 unfinished apartments in what was originally planned as a luxury housing development.
Shanghai Urban Architecture Design has taken 115 apartments to settle the equivalent of some $10 million it was due.
Police departments in China’s Dejiang, Yuping, and Sinan counties have settled the equivalent of some $10 million owed to a software developer with the transfer of apartments from a failed property developer.
Praise for imagination is due to these people. Still, their resort to what has effectively become a barter economy should give a sense of how severe China’s problems of economics and finance have become. Beijing might have headed these problems off by acting promptly at the first signs of failure, but as it was, the authorities took no action until late 2023, fully two years after Evergrande collapsed.
What they have done since has done little to arrest a crisis that has had so much time to build in the interim.
China is following the liberal strategy of building infrastructure. Build as much infrastructure as possible before the decline and you’ll at least have the infrastructure built when it happens.
When a junkie can’t afford a fix what do they do?
Not necessarily. It must be maintained. I expect it’s fairly deteriorated already.
Their decline is going viral.
As it should.
Paybacks for Wuhan.
Xi spent $billions on building a new state of the art mega city - that hardly anyone has moved into.
look up ghost cities of China on youtube...
If you’re interested in what’s going on in China, google “Lie flat” or “Let it rot”. It’s FASCINATING. Here’s the Reader’s Digest version.
As a young man, you can’t get married until you buy an apartment. (These apartments are completely unfinished shells, basically just a concrete square with plumbing hookups.) It has to be bare because it must be built for YOUR PERSONAL fung shui. (Yes I’m serious). If you don’t own an apartment, no woman will marry you.
And with all the speculation in apartment buildings that happened, the pricing of apartments is now out of reach for guys. They’re staring at their income and realizing that there’s no way they’ll ever make enough money to pay for one. So this means there’s no chance they can get married. So, no kids, no real future. WHY WORK? So bunches and bunches of them have given up. They lie around all day playing games on their phones. (with their parents I assume, I’ve never seen that addressed). But they’re facing a generation that has given up.
Oh! And another fact. During the “1 child per couple” days . In Chinese culture it’s normally the oldest son who takes care of the parents when they retire. If you’re only allowed 1 child, you want that child to be a son. So, lots of girl babies given away, or aborted. They did this for over a decade. I’m sure you see the problem. All these guys are now marrying age, and the M:F ratio is HORRIBLY skewed. Meaning the women can be ultra choosey of who they marry. So now not only do you have to have an apartment, you have to have a REALLY NICE apartment, and lots of money.
Which the young guys can never earn.
Gonna be interesting to watch! I hope that the CHICOMs don’t get desperate enough to stay in power that they start a losing war just to thin out the herd so to speak.
You would hope fiscal decline might stop their military belligerence, but North Korea has not been deterred. Darn.
Or unleash a easily transmitted virus
Given China’s and Russia’s financial strains, they may well accept President Trump’s proposal for all 3 of America, Russia and China to cut Defense spending by 50% over the course of 5 years. They could use the cash savings as much as we could.
Much of China’s infrastructure is also so quickly and badly built as to be defective or even unsafe. As in much of the world, corruption and cheating are considered normal in China. A cousin of mine who has done business in China describes wealthy factory owners whom she knows there as showing off European and American market clothing and products with the sales tags left on as better made than similar domestic Chinese goods.
“I hope that the CHICOMs don’t get desperate enough to stay in power that they start a losing war just to thin out the herd so to speak.”
Isn’t that what the western globalists are doing in Ukraine, thinning out the herd of whites?
Sounds like the best thing a young Chinese man can do is find another country.
Communism never works, but the market reforms of his predecessor spooked Xi so he veered into fascism. Perfect system if you’re a belligerant. Won’t save china’s economy tho’.
And yet our industries continue to use their resources.
‘Free traders’ be damned.
With the,economic decline will come civil unrest followed by a war against a foreign adversary.
Ptomkin at work again.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.