China’s property meltdown – here comes the next external shock to NZ

By
Martyn Bradbury
-
49
4267

10 years ago analysts were warning that China’s largest property investment company, EverGrande, was a basket case of Frankenstein ideology spawned between the Communist Party and the market forces of Chinese Capitalism.

The analysts warned the insane amount of debt wracked up was utterly unsustainable and if it collapsed billions would be lost.

That was 10years ago.

Now EverGrande has $300billion in debt and the implosion is likely to cross a debt black hole threshold and drag China and the globe into an event horizon of recession at a time when Covid is still being fought.

I think if EverGrande implodes it will trigger a mass liquidation of external property holdings and businesses meaning the Chinese investor will dump property assets in the West to shore up the domestic Chinese economy.

We can see this with WasteManagement up for sale now (an asset the Regional Council should buy). If EverGrande spreads expect the contagion to hit property prices hard as a glut of sales extinguish demand.

Expect higher interest rates as house values plummet. Watch how quickly NZ Middle class kindness evaporates when they lose 40% of their fake housing wealth.

This type of economic carnage in the West would suit China’s diplomatic goals in the wake of AUKUS.

TDB Recommends NewzEngine.com

I have argued that China’s recent crackdowns on screen times, effeminate men and Chinese Tech Tzars is driven by a paranoid and frightened authoritarian State not the bold moves of an optimistic new SuperPower.

When the economic sugar rush of fake growth passes its first bloom, the dark tyranny of war quickly angers into those hollow promises.

Pandemic + economic strife = war.

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49 COMMENTS

  1. Who holds Evergrande’s debt Martyn? I suspect it is mostly western banks and speculators. If it is going to destabilise the Chinese economy they will bail it out like the US and Western central banks have been bailing out zombi companies since 2008; If not they will watch the western banks and investors suffer.
    D J S

    • Or as per the Japanese banks since about 1989 crash, from which the stock market has still to recover from.
      38,915 in 1989 and 30,500 today.

    • A majority of the debts are internally held by ‘Chinese’ banks and corporates.
      The ‘invisible hand’ of the CCP is about to swing into action. They’ve already audited the company and know where the debts sit.

      Give the Chinese some ‘credit’. They’re a lot smarter than the Wokester Westerners. They learn from past mistakes!

      • As of January 2021, China owned $1.095 trillion, or about 4%, of the $28 trillion U.S. national debt – which is more than any other foreign country except Japan.

      • Agree Denny, the overvalued property market can crash and burn trillions of fictitious capital and find a new lower level without destabilising global repercussions . The state will probably print money to gobble up the decent stuff for peanuts in the same way it invests in other infrastructure. Its called a correction of the market when overvalued property devalues. China is state capitalist and can control the internal market without affecting its position as the biggest producer of value in global market. Devalued property will spur investment in production and probably boost real profits. Any repercussions for Chinese owned property in Aotearoa will also drive inflated prices down towards its real value. The gutless Labourites should buy it up cheaply and make it carbon negative. So no need to panic on that front. Enough reason to panic that the US is in rapid decline and has a much greater stake in our economy than China. It owns Aussie banks which own ours. So get ready for the revolution.
        A few Marxist concepts always help. https://thenextrecession.wordpress.com/2021/09/19/not-so-evergrande/

  3. If there is a global melt down hopefully the NZ government picks up our own assets cheaply – good time to buy!

    Land prices are bonkers, based on the idea that developers with deep pockets are buying up land in the middle of nowhere or unsuitable places, and ramming through consents due to our bovine councils and polluting and legally corrupt RMA system.

    A builder was telling me that China construction bank was financing the construction of some apartment building in Auckland. He said, “if I went for a job, I would not get it, they only employ Chinese people.” Oh and I guess disgraced director of Mainzeal, Jenny Shipley spent some time/maybe still there on Chinese Construction bank. There is always a place at the table for those directors that blindly do what they are told and transfer loans out to China…

    I wonder why so many companies hate employing Kiwi’s in their business now, is it because there are so many dodgy things going on in NZ business, that they don’t want any whistleblowing or scrutiny?

  4. There’s divide and conquer but younger people are different. We have expectations that if we go to war that NZDF is prepared and prepared to fight for a good reason namely to punish those that undermine the structure of democracy.

    What desperate politicians can not control they simply invade the consequences being abnormally high civilian casualties.

    Any invasion renders the UN utterly ineffective so the post corona rules based order which NZDF rules of engagement are going to have to go sideways, not so much stronger or weaker but from a peace keeping force to a defensive one, the end game being a presence in every geography New Zealand has an interest in.

    • “There’s divide and conquer but younger people are different. We have expectations that if we go to war that NZDF is prepared and prepared to fight for a good reason namely to punish those that undermine the structure of democracy”. And which reality are you choosing to live in this week?
      Considering the tsunami of hypocrisy that underpins the “modern” thinking you laud as so much more “democratic” than what went before, this would be a humorous utterance.
      With the best will in the world, a set of “philosophies” based largely on revenge fantasy, and self , centeredness, the chances that the kind of pressures created by a situation theorised by this article, the fragmentation process will occur at a compounding acceleration.. Within weeks they will all be at each others throats.. The sudden, and imposed realisation that the NZDF is nothing but a speed hump to the armies that will be involved in any serious fight in the pacific region.. The only ones that will be getting “punished” are the ones foolish enough to try to “tut tut” the naughty boys and girls who aren’t being “nice” to them.. As an aside.. How could the UN relevant to a property bubble bursting in China, and the inevitable fallout from that? Easy answer.. Absolutely nothing… They don’t have the power to tell anyone to “stop that you naughty children” to a kindergarten class, let alone two of the most powerful economies on the planet…

      • Australia is getting nuclear powered subs…

        You understand what that means for New Zealands relationship to with Australia and the consequences of those actions correct?

        No one else s going to like us. Particularly no one is going to enjoy very much listening to nobodys on the internet whinge about this or that feelings got broken and hurt.

        Probably Indonesia will start doing weird shit. They might even boom towards nukes of there own. Actually I jinx that.

        Just try not to freak out okay champ. There enough loonies out the articulating there deep knowledge and understanding of internet, google and YouTube theories.

  5. And as a result of the Evergrande melt down , and to curb emissions, China is easing off on it’s building boom .So they have less need for iron ore from Australia, and iron ore prices have plunged.China also recycles steel internally and can afford to cut more iron ore imports from Australia by buying it from it’s African interests, eg Guinea, with far less of the insults and hassle.
    https://www.smh.com.au/business/companies/iron-ore-s-freefall-hits-australian-miners-as-china-curbs-steel-output-20210917-p58skq.html

  6. Now do you understand why the Chinese have been getting ‘black’ money out of China and buying up property all around the Pacific Rim for the last decade or so?

    Everyone who was anyone knew what was going to happen and has been smuggling money out of China as fast as they could, although Xi tried to clamp down on in recent years.

  7. I see Trump’s empire sure up by vast loans is very shaky . The banks that a few years ago were throwing money his way are now getting nervous. It will be a similar situation with other false phophets of get rich schemes.
    In NZ the property bubble is getting ready to explode. The false sense of security many have felt with the increase value of their property matching the lose of income due to covid will soon vanish . This government has show it cannot move quickly so when the dam breaks many will be left with nothing . So many young people that are over extended have never experienced property values falling and will not reconize the signs until it is too late .
    I hope I am wrong but I fear for the future and the young families that will suffer the fall out.

      • I have been here waiting for this government to move on child poverty /the housing situation with regard to renters or buyers / the stranded NZ citizens trying to get through MIQ . Those are just some of the problems not being fixed.

  8. I first went to China in 1997. Before I got on the plane people kept telling me ‘China’s economy is overburdened with debt and soon it will collapse.”
    Still waiting.
    China may have embraced free trade and consumerism. It never became neo liberal Capitalist in the sense New Zealand did in the 1980s. Their government does not see anything wrong with intervening in the economy or in business.
    What COULD bring about chaos is a power struggle within the Communist Party such as caused the Cultural Revolution. This would not be good for the Chinese or ourselves either.

    • I agree. China or Chinese did NOT do this to NZ, our government and their policy advisors sold off our country, gave away our pensions, welfare, health care, housing, assets and our identity. What is even worse in order to do that, they marketed an identity of Kiwi’s being lazy, unskilled and drugged out, most people actually believe that now, as it’s been a strong public message from our government for Years. Most Chinese and foreigners believe it too.

      However this is NZ that still exists, barely alive, unfunded by the neoliberals and ignored by the woke, but still fighting and strong, generous, charitable, modest and wise. The NZ that gave the poor state houses and have people able to survive on one income before the employment contracts Act.
      https://www.tvnz.co.nz/one-news/new-zealand/non-profit-kaupapa-helping-struggling-wh-nau-in-far-north-despite-pandemic

      • Note others are contemptuous of NZ’s ability to share and see it as non competitive. many are starting to laugh at our ‘trust’ model of paying taxes and keeping within the law.

        Some of the NZ decisions by government and officials in NZ have been mind boggling.

        Criminals getting residency in nz before doctors comes to mind.

        22,000 MIQ places needed but somehow the ISIS bride and her kids (and some report her parents too) came into NZ getting priority. I mean they were in a refugee camp, why so desperate to get them VIP flights, MIQ, no doubt a rental in NZ, when there are others more deserving who are not given priority treatment.

        As soon as the migrant doctor who allegedly killed her children recently, the next day an article about how her family from South Africa were likely to be given priority MIQ. NZ citizens have children die and don’t get to say goodbye with Covid.

        The other day, some guy is appealing not being about to get a professional hair cut while being extradited to NZ and in jail on drugs charges. Don’t they have some normal procedure in prison for hair cuts? Our justice system is awash with appeals and charges that go on for years which the legal system seems to be getting very rich off attracting these types of cases. Meanwhile justice is held up for everyone else.

        Woke virtue signalling out of control here.

      • ‘they marketed an identity of Kiwi’s being lazy, unskilled and drugged out’. Yes interesting. Kiwis certainly project (or is have?) a different work ethic to many Asians I’ve seen here. I often see Chinese builders working into the evenings and then all weekend working on houses. Not kiwi tradies, but Chinese. The faster you build a house the more cost effective it is. It’s a new concept for many a business.. I think it’s called productivity….let me google it…yep there you go: “Productivity is a measure of how efficiently capital and labour inputs are used within the economy to produce outputs of goods and services.” You can say what you like, when it comes to building houses in NZ, Chinese tradies are damn efficient.

        • Hmm clearly the Chinese model is not working in NZ judging by our glacial speed of house building at the greatest possible profit. Perhaps they work because they are paid in cash, are illegal and not sure if this style of building is producing the houses that we created quickly and cheaply in the 1950’s.

          “Worksafe NZ’s investigation report found Yu was working as a builder under the umbrella of a company called Star Echo Ltd (SEL), which was the latest in a string of subcontractors hired to develop the Hobsonville house site.

          Although Zheng Jinghui was director of Star Echo, the discussions and work was taken on by “a very experienced and highly regarded builder in the Chinese building community”. Yu was among those hired to build the house.

          On the day of Yu’s death, he had climbed to an incomplete first floor to work in an area where struts were temporarily pinned by only two nails. A co-worker nearby turned when hearing timber moving and watched Yu “trying to regain his balance”.

          Yu “tried to grab at some joists but wasn’t able to hold on”. He fell feet first through to the ground floor 2.9 metres below, landing on a concrete slab. “As he fell back his head struck a piece of timber that was located on the ground.” Yu was declared dead in hospital two days later.

          The investigation report found Star Echo had three previous interactions with Worksafe NZ with faulty and incomplete scaffolding cited in each instance. The company had received notices compelling improvement from Worksafe NZ but was not prosecuted.

          In this case, there was a recommendation to prosecute the company for removing equipment and tools from the building site before either police or Worksafe NZ arrived in the aftermath of the accident.

          The investigation found Yu was 45 when he died with no visa allowing him to legally work in New Zealand after arriving on a 30-day visitor visa in 2015.

          Du told Worksafe NZ her husband paid $30,000 in China for legal work in New Zealand but realised on arriving here that he had been duped. After paying $1800 to another contact, Yu was connected with the builder who was overseeing work at the Hobsonville site.”

          https://www.nzherald.co.nz/nz/illegally-working-overstayer-dies-on-the-job-acc-payment-made-to-widow-in-china/OWADEJMGCUYM36WLF6YNKUA2SE/

  11. We’re talking here of a Chinese owned company and our housing market, but if the dam breaks it’s what might happen in China that may affect us the most.The downturn there could see our exports to China dry up over night and our ability to pay off the billions we’ve printed and borrowed gone along with replacing our infrastructure. We would then see our economy go into a tailspin.

  12. In the USA the new administration is looking to up home buying.

    “The Biden administration is close to announcing the nomination of a key regulator with broad powers to change the $11 trillion mortgage market and reshape the American dream of homeownership, sources tell NPR.

    The administration has narrowed down the candidates to run the Federal Housing Finance Agency, or FHFA, according to sources who are familiar with the matter but are not authorized to speak publicly.

    While not a household name, the agency has enormous power because it controls Fannie Mae and Freddie Mac, the two entities at the heart of the mortgage market. They largely decide who can qualify for a home loan and at what cost.”

    https://www.npr.org/2021/09/18/1038353689/housing-fannie-mae-freddie-mac-fhfa-director

  13. Martyn, you have no idea how Economics work? You are applying Western Capitalist concepts of risk & reward via Property speculation which is entirely funded from a Debt based model as per the US Model & as it is in NZ? China is not tethering of the Financial abyss as you claim, its the exact opposite? China has a Trillion dollars of US Treasury bonds, it has Yearly, $300 Billion dollar Trade surplus’s with the US alone, they have so much Western Currency that they don’t know what to do with it? They have the capacity to pay off their entire Property debts if they so wished, so the question has to be asked, why don’t they? Cleverly, the debt that they have accumulated is all with Western Financial Banking institutions, who are in perilous monetary positions & are technically bankrupt but are propped up by the Federal Reserves money printing of fake Currency to survive? If those Western Banks collapse, so does China’s debt obligations! China takes the Fake US Currency & buys real, tangible assets with them? China doesn’t waste trillions on stupid Wars like the US does, it all goes to benefit its Nation & other Nations! They are taking over the World via Trade, without a shot being fired? Contrast that to the dying American Empire wasting Trillions on Wars it can’t win, the AUKUS FUCKUS being the latest drumbeat to yet another unwinnable War with a Nuclear armed China, the delusional Americans, Poms & Aussies having been humbled & humiliated out of Afghanistan have convinced themselves that a War with China can be won despite being whipped by the raggedy assed Taliban? US warmongering continues while its domestic economy rots, this is clearly unsustainable & I envisage that America will collapse within the next 20 yrs or sooner, its just inevitable!

    • I know little how finance works in China but I do have friends with business contacts and they tell me there are many thousands of businesses that have a form of IOU from this home building company. At one state they were like currency and we’re exchanged at face value. The whole company was based on a constantly growing market similar to a pramide scheme.
      Covid has caused a slow down and now the money has stopped flowing and all of a sudden the IOU look not so secure.The government is trying to stop,protest but the message is out of the bottle and it looks like a huge collapse is due and this will ripple around the World.

    • China might hold US currency debt, but if they call it in, they devalue their own investment so are not likely to do that. If they go too far, it will cause a systemic collapse, and China will be one of the biggest victims. US and China are are held by mutually assured financial destruction, and they don’t need nukes to keep the balance of power. They are equally weighted economically to not fight it out, and calling in US dollars will be options of last resort.

    • EverGrande is very intertwined with the wider economy. It does more than just property development although that sector is being hit beyond this one company.

      EverGrande has
      • 200,000 employees
      • 1,300 projects in over 280 cities
      • Contractors are not being paid
      • 1.5 million citizens have paid deposits for houses and apartments that have not been built.
      • Some property prices are declining so some depositors risk going into negative equity on a non-existent property.

      Aside from the impact on the Chinese middle class who the CCP need to keep content, another huge problem is the 2nd and 3rd tier cities cover a large part of finance through land sales to property development groups.

      So the debt of EverGrande is not all with western institutions. A collapse will directly impact the domestic economy, local government and citizens.
      I expect a bailout, with something extra to mitigate the moral hazard, especially given the recent ‘renaissance’ of CCP cultural values.

      However if EverGrande does collapse we could end up with GFC part deux.

  14. I predict there will be a complete (or at least partial) bailout by the Chinese Government (they’ll just print money), just like we did in the West (aka TARP). The EverGrande executives who speculated will be richly rewarded, just like the CEO’s of CitiGroup, Bank of America, Goldman Sachs, JP Morgan, Welles Fargo etc. Stock Markets will rebound to new all-time highs on the news.
    https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program

  15. Talk about the next external threat. Nevermind Chinese property owners…Martyn, now that Jacinda has effectively given up on ‘elimination/eradication’ and has switched to ‘managing’ the virus, can we expect a fresh article tomorrow on ‘Fortess Aoteroa”? I think that is a dream you need to park for a while. NZ will be opened up, the virus will creep in. It’s inevitable. We should all embrace reality and just get vaccinated. Unless you fancy yourself bulletproof, anyone?

  18. The silver lining is that whoever in NZ government called for NZ based banks to have higher liquidity, were right on the money!!! They finally did something right!

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