Author Joe Huft has lived in Hong Kong for the past decade and had an intimate knowledge of China
We have been reporting year after year about China’s economy and the reasons for concern. Our concerns have come.
We reiterated our warning about the state of China’s economy in early 2020.
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We reported in May 2019 that a perfect storm was brewing in China in 2008 as well as in the United States. Excessive and extraordinary construction projects, cash flow challenges and lack of demand in China can all be combined for a major financial catastrophe.
We warned that China’s real estate was in the same condition as that of the United States in 2008. As China grows, it has invested in its infrastructure, and in addition, it has invested in large housing projects across the country. These efforts have helped strengthen China’s already fast-growing economy.
The problem is that China has invested heavily in all of these random assets throughout China, and these assets are still vacant.
(See pictures below and above of real estate projects in central China (Hubei Province) – huge but mostly empty.)
We knew that there were not enough people in the area where these huge complexes were built to make enough money to live in these communities.
Many of these properties across China are vacant, and there is a cost to it. As we mentioned, Bloomberg reported in September 2018 –
Real estate companies with more than 0 public transactions tracked by Bloomberg had short-term debt-to-debt levels averaging 133 percent in the first half, the worst in the first six months of 2015 and down from 297 percent a year earlier. About a quarter of developers play a ratio below 50 percent.
In addition, Bloomberg mentions:
But as the business booms, so do the developers. Companies are selling more bonds in the domestic market – and at a cheaper rate for investors to remove default concerns. Among the dollar-denominated obligations, the U.S. Federal Reserve faces higher ingot costs as it continues its tough path.
We warn that China’s over-development debt is huge. The total amount is unknown by estimating the amount of S&P Unresponsive Local communities and banks over 6 trillion:
According to a study by S&P Global Ratings, China may be sitting on a debt pile with 40 trillion yuan (6 6 trillion) hidden by the country’s local governments.
Many local governments in China increase debt and keep their balance sheets closed to avoid the limitations imposed by the central authorities. S&P says this is a growing problem in the country, and thus the amount of held o has probably ballooned in recent years.
We’ve reported how a major economic downturn could be imminent:
Not only is the level of debt hidden by local governments in the world’s second largest economy increasing, but the risk of default is also increasing. Most of these are occupied by so-called local government financing vehicles (LGFVs), and the S&P reports that the central government may allow these vehicles to go bankrupt in the future.
“The default risk of LGFVs is increasing. China has opened up the possibility of filing indigent LGFVs for bankruptcy, but managing default results is a difficult task for top leadership.
The country’s total non-financial debt, including household, corporate and government debt, will grow by about 100% of GDP by 2022, up from 222% in 2016. A spectacular push could be imminent.
In the last few weeks, we have seen the collapse of Evergrand, a Hong Kong company with a debt of over ০০ 100,000 billion, which it is now unable to repay. The Hong Kong Stock Exchange closed the company today. Billions upon billions of Chinese property of this company and with o that goes with it.
Break: Hong Kong’s Evergrand, along with its huge China real estate portfolio, has been shut down as the debt crisis intensifies.
We also reported last week that China was cutting off its electrical power one day a week. This is not because the economy is on fire. It’s just the opposite.
More woes for China as it cuts power across the country, negatively affecting its GDP
In addition to all this, rumors coming out of China that production concerns in the country have now come down to working only 3 days a week. This crisis is real.