Last week Chinese central bank lowered their interest rate after the news that property sales fell 30% compared to last year .
People have lost trust in the Chinese real estate purchase model. It worked as a Ponzi scheme. Using your money to build my building first . The developers could also get loans from banks once they bought the land with their client's money. These developers were highly indebted because of this.
Most buildings were being built in towns without a dynamic economy. These towns relied on the sale of land as their income.
Lastly there is a whole supply chain of plumbers, appliances, elevators etc that will go broke along with the developers.
The government solution has been to instruct the local governments to finish off construction. Not a great plan.
This is a much more serious problem than many realize . The real estate sector represents 35% of their economy. It could slow their development for several years . And confidence is very low in the business sector. Covid Zero policy also has resulted in thousands of small businesses that had to shut down.
In the podcast below Andrew Left of Citron comes out as a star . He put out a report TEN years ago warning about the insolvency of Evergrand.
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