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Thread: China Property Collapse Has Begun

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    China Property Collapse Has Begun

    Nothing is going right for Hangzhou at this moment. Walmart will be closing its Zhaohui store in that city on April 23 as a part of its overall plan to dump marginal locations—about 9% of the total—in China.

    Thanks to the world’s largest retailer, another large block of space in Hangzhou, the capital of Zhejiang province, will go on the market at a time when there is generally too much supply. The problem is especially pronounced in the city’s premium office market. Hangzhou’s Grade A office buildings at the end of 2013 had, according to Jones Lang LaSalle, an average occupancy rate of 30%.

    The real weakness, however, is Hangzhou’s residential sector. The cause is simple: massive overbuilding. Sara Hsu of the State University of New York at New Paltz writes that Hangzhou faces “burgeoning swaths of empty apartment units.”

    . . .

    Official statistics do not seem consistent with the general trend of reports, but in any event severe problems are evidently ahead. The secondary property market has tumbled, with sales falling by more than half in Q1 2014 from the same quarter in 2013. Speculators have either left the domestic market or have sold off holdings. Rich Chinese, now interested in foreign holdings, are also shunning their home market. Foreigners, who own only an infinitesimal portion of China’s property but who are a bellwether nonetheless, are investing at the slowest pace in at least a decade. Middle class Chinese are also largely out of the market.


    And that’s not all. China property trust sales plunged 49.1% in Q1 2014 from the previous quarter, from 99.7 billion yuan in Q4 2013 to 50.7 billion yuan. The precipitous fall was due in part to the failure last month of developer Zhejiang Xingrun Real Estate, which had 3.5 billion yuan of indebtedness.


    Moreover, just about everyone expects more developers to close their doors. For one thing, the central bank is not injecting liquidity as fast as it once did. And interest rates are increasing, the reason why a Finance Ministry one-year bond auction failed on Friday. Many private developers had gambled that property prices would rise faster than interest rates, but that now looks like a losing bet. Zhejiang Xingrun, for one, became insolvent after it had borrowed at ultra high rates.
    Source: Forbes

    Here is another article with a few key points about this:


    The 200 or so Chinese cities with populations ranging from 500,000 to several million account for 70% of the country's residential-property sales. In many of these cities, developers are slashing prices and offering freebies such as kitchen furnishings and parking spaces as they try to work through vast gluts of unsold property. Protests are breaking out among buyers angry that their investments are losing value.


    Data in some of these smaller cities is scarce. But in 100 cities tracked by Nomura Holdings Inc., 8604.TO +0.17% 42% of those classified as Tier 3 and Tier 4 saw housing prices decline in March from February. Home construction in such cities is racing well ahead of population growth, says Beijing research firm Gavekal Dragonomics, as developers continue to build new projects without buyers.

    . . .

    The construction, sale and outfitting of apartments accounted for 23% of China's gross domestic product in 2013, Moody's MCO +1.79% Analytics calculates. That is up steeply from 10% in 2006 and is higher than American housing's share of GDP reached during the height of the U.S. housing boom in 2006, Moody's says.

    The housing troubles add to other headaches for the world's second-largest economy. They come at a time when debt in China is climbing as rapidly as it was in the U.S., Europe, Japan and South Korea before their economies cratered in years past. And China's growth, while still healthy by world standards, has slowed to its weakest since the Asia financial crisis of the late 1990s, amid less-robust demand both at home and abroad for Chinese goods.

    . . .

    The finances of some cities and developers are being affected. China's local governments depend on land sales to developers for about 40% of their revenue. Now those sales are bringing in less cash.

    . . .

    As developers grow short of money, some are using apartments instead of cash to pay their bills to construction companies. Anne Stevenson-Yang, research director at J Capital Research in Beijing, who crisscrosses China checking out property developments, sums up the real-estate market in China's smaller cities "an incredible house of cards."

    Further weakness could mean trouble for construction companies and appliance and commodity producers. Furniture and appliance sales in China have been slowing along with the weaker pace of apartment sales. Also potentially affected are businesses that use real estate as collateral to get new loans; China's banks rely on property holdings as the main collateral securing loans.
    Source: The Wall Street Journal

    The much-feared Chinese recession seems to be looming ominously on the horizon. With all of the underlying economic weakness throughout the world, this one looks like it is gonna hurt.
    "For what is Evil but Good-tortured by its own hunger and thirst?"
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    Re: China Property Collapse Has Begun

    China has been cheating the laws of economics for probably 20 years, time to pay up.
    "He who does not think himself worth saving from poverty and ignorance by his own efforts, will hardly be thought worth the efforts of anybody else." -- Frederick Douglass, Self-Made Men (1872)
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    Re: China Property Collapse Has Begun

    How/will this affect the U.S. and the rest of the interconnected world?

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    Re: China Property Collapse Has Begun

    Quote Originally Posted by Jango View Post
    How/will this affect the U.S. and the rest of the interconnected world?
    Let's see how bad it is. At this point nobody could really say.

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    Re: China Property Collapse Has Begun

    Quote Originally Posted by Demon of Light View Post
    Source: Forbes

    Here is another article with a few key points about this:

    Source: The Wall Street Journal

    The much-feared Chinese recession seems to be looming ominously on the horizon. With all of the underlying economic weakness throughout the world, this one looks like it is gonna hurt.
    True. We have been expecting a consolidation in China for quite some time. There must have been massive miss-allocation during the roaring years. The question will be how much further the rot reaches beyond real estate.

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    Re: China Property Collapse Has Begun

    The ugly side of state capitalism: when demand does not meet artificial supply.

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    Re: China Property Collapse Has Begun

    Quote Originally Posted by Demon of Light View Post
    Source: Forbes

    Here is another article with a few key points about this:

    Source: The Wall Street Journal

    The much-feared Chinese recession seems to be looming ominously on the horizon. With all of the underlying economic weakness throughout the world, this one looks like it is gonna hurt.
    I think that's rather old news:

    All Quiet (began building five years ago)
    The Kangbashi district began as a public-works project in Ordos, a wealthy coal-mining town in Inner Mongolia. The area is filled with office towers, administrative centers, government buildings, museums, theaters and sports fields—not to mention acre on acre of subdivisions overflowing with middle-class duplexes and bungalows. The only problem: the district was originally designed to house, support and entertain 1 million people, yet hardly anyone lives there.





    Proving that "if you built it," they won't necessarily come.

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    Re: China Property Collapse Has Begun

    Yeah, but continued injections of cash via riskier and riskier debt instruments has kept the high going for some time.

    This has been predicted (and derided) here on DP for some time now - but it is an inevitability. You can only maintain a binge for so long before you crash.

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    Re: China Property Collapse Has Begun

    Quote Originally Posted by cpwill View Post
    Yeah, but continued injections of cash via riskier and riskier debt instruments has kept the high going for some time.

    This has been predicted (and derided) here on DP for some time now - but it is an inevitability. You can only maintain a binge for so long before you crash.
    One major factor is that the government is less committed to economic intervention and more to reforms. There is also the fact that the past few years have seen the kind of widespread speculation and malinvestment that no one believes is sustainable and recognize should be cleansed from the system. I expect the leadership wants it to happen slowly, but articles such as this indicate that it is moving rather rapidly.

    Quote Originally Posted by Jango View Post
    How/will this affect the U.S. and the rest of the interconnected world?
    The most direct impacts would be on commodity markets and, by extension, major commodity exporters. Included in that would be seemingly strong economies like Australia and Canada who not only supply a lot of resources to China but are also seeing real estate bubbles partly fueled by Chinese buyers. Obviously, China's regional neighbors will feel the pinch as well. Japan will take it hard given that its economic state is not the best and Shinzo Abe's efforts to stimulate the economy seem to have already backfired. One big point of exposure for the West is the UK who have very large banking operations with considerable exposure to the Greater China market, including mainland China. Hong Kong is major financial center in Asia and it would be severely impacted by any significant decline in the mainland as it also experiences a property bubble due to mainland investment.

    One thing to look at is the Asian financial crisis, where small Southeast Asian countries suffering a crisis led to the Lost Decade in Japan, the Russian default, and the failure of Long-Term Capital Management. A financial crisis emanating from China would be many times worse, especially in the current economic environment as it is far weaker than the economy of the late 90's.
    "For what is Evil but Good-tortured by its own hunger and thirst?"
    - Khalil Gibran

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    Re: China Property Collapse Has Begun

    Quote Originally Posted by Demon of Light View Post
    One major factor is that the government is less committed to economic intervention and more to reforms. There is also the fact that the past few years have seen the kind of widespread speculation and malinvestment that no one believes is sustainable and recognize should be cleansed from the system. I expect the leadership wants it to happen slowly, but articles such as this indicate that it is moving rather rapidly.
    ...so long as that "no one" is restrained to "senior CCP leadership", perhaps. the continued demand for WMP's indicates that information has not fully trickled down to the (about to be fleeced) masses. Which is why you are also correct to say that they want to pull this bandaid off slowly - the last thing they need is to lose their claim that they can competently manage China's economy to produce constant, rapid growth.

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