Our Chinese Woes Get Ever Grander

Our Dutch correspondent H. Numan takes a look at the current crises in China.

Our Chinese woes get Ever Grander

by H. Numan

Seems like the only real quality items coming from China are pandemics and crises. We can’t blame them for the Black Death. However, the Chinese Communist Party (CCP) denied any responsibility for SARS and now again for Covid-19. They added something new to that deadly duo, as if the Covid-19 pandemic weren’t enough. The Chinese real estate developer Evergrande is going bankrupt. With it, China. And the rest of the world as well. Don’t believe for a minute the crisis can be contained to China only.

Imagine the biggest real estate developer in America goes bust. Add to it a real estate bubble running for decades. All of a sudden, the value of houses drop by 75%. Would that impact the economy of America? Of course it would. Not just America, but the rest of the world as well. It’s Lehman Brothers all over again.

By now you surely have heard of Evergrande. Two weeks ago it all of a sudden popped up in the news. It’s the second biggest Chinese real estate developer, going bankrupt. Evergrande doesn’t do just real estate; it’s a huge conglomerate doing much more. However, real estate is the core — and there isn’t enough money to pay the bills. At the moment the total outstanding is $300 billion. With 200,000 jobless employees and +1.5 million highly unsatisfied customers.

How did that happen? The Chinese have very little opportunity to invest their savings. It’s a communist country, after all. Chinese money may be internationally recognized and a world reserve currency; internally it’s more like coupons to buy goods with. You can’t invest on the stock exchange, the only thing you can do is to invest it in leasing real estate. I stress leasing, because you can’t buy land or properties in China. It all belongs to the CCP. You can lease it for 70 years. Provided you’re really nice to the local party bosses who grant those leases. That’s what everybody in China did.

Local governments (provinces, cities) don’t get much money from Beijing. Most of their income they get out of selling leases to real estate developers. Those developers happily pay the price, plus a nice fat bonus to the local CCP boss, and start selling properties from the drawing. Nothing has been developed yet. Not a stone has been laid. In many countries buying based on a drawing is illegal. In China you have to pay in full upfront for a house. That money they used to buy more leases. And so on. That’s the basic concept of a Ponzi scheme.

Another factor is the failed one-child policy. Chinese prefer boys over girls. If they are allowed only one child, it better be a boy. Many parents had girls aborted. Which resulted in a surplus of boys. Do the math. The policy started in 1979, and ended in 2015. That means a lot of baby boys are now grown man desperately seeking a wife. Each possible wife can pick whoever she wants. They can literally say: for you? Ten others! A man really needs at least one house plus a nice car to be considered for marriage. Having two or more houses is even better. The demand for houses outstrips supply by a huge margin.

The third factor is the lack of spendable income. The average Chinese middle-income worker earns considerably less than his American or European counterpart, about ⅓. Add to that horrendously high real estate prices in China. He makes one third of what you earn, but has to spend at least ten times as much on buying a house. To the Chinese, houses in California are ridiculously cheap.

Something made of quality died long before the Great Leap Forward. Those hugely expensive apartments are shoddily build at best. It’s quite common for large buildings and bridges to wobble or even collapse. That doesn’t get into the news often, as it is local news. China doesn’t allow bad news to go worldwide.

The authorities use building regulations simply to extort money from developers. Developers didn’t care. What you can’t see doesn’t matter. Cover things up with a bit of plaster, and pay whatever is demanded. Real estate prices rose at least 10% per year, so who cares?

The basic interest doubling rule works like this: If the interest rate is 7%, it takes 7 years to double the original amount. Lower rates take longer, higher rates work faster. It means that Chinese real estate doubles in price roughly every 5-6 years. After another 5-6 years, it doubles again. And again: 2-4-8-16-32-64. That is unsustainable. Even the Chinese government knows that.

So this year they set three rather simple rules to curb the bubble a bit: a developer has to have some financial reserves other than real estate. Houses can no longer be sold from the drawing; the property must be in a certain stage of development. And lastly, a house must be delivered ready for occupancy. Meaning: not an empty shell without a roof, windows or facilities. Pretty basic rules. However, even those very light rules proved to be way too much for Evergrande.

Evergrande tried to play a very dangerous card: they told the government they would be forced to sell all their assets to cover their debts, for whatever they can fetch. No investor will swap debt one on one. Evergrande started by offering 25% discount, but that’s just for starters. Investors might consider a debt swap at +75% discount. That means ALL real estate in China will drop accordingly, wiping out the entire middle class, and a lot of the upper class.

Why is that playing a very dangerous card? Because they are backing the wrong man. You see, in China there is only one party. That doesn’t mean everybody thinks exactly the same. Every political party has at least three wings: left, center and right. Even the NSDAP. The SA represented the extreme left wing, the SS the extreme right wing. That goes for every political party, wherever on the world. Your DNC has it; the Reps have it; every party has it.

Instead of joining a separate party you join a faction under a CCP big shot. Evergrande joined the Li Keqiang faction. That’s the faction of the prime minister. Not the faction of Xi Jinping, the president for life. Xi doesn’t like Li, to put it mildly. So he’s very happy to see Evergrande falling into the abyss. That’s one enemy fewer to worry about.

Xi’s position is not — yet — undisputed ruler of China. For now, he’s satisfied being president for life. He still has to consolidate his position. When you read about corruption trials in China, that’s Xi replacing highly corrupt enemies with his own equally corrupt people. Has nothing to do with fighting corruption. Hitler used long knives. Xi uses corruption trials.

So, Xi will very happily let Evergrande die. All he cares about, as any dictator and every socialist party does, is how to remain in power. That is the primary goal of the CCP. It doesn’t matter what happens with the population, as long as it can stay in power.

As you saw last year during the Covid-19 crisis in China, draconian measures were taken to control it, or try to control it. We really don’t know what’s happening in China. It is a closed country. Those who do know what’s going on (foreign intelligence services) don’t tell. Data coming from China is notoriously unreliable. According to Chinese — in other words CCP — economic data, China survived the Covid-19 crisis relatively unscathed. Where the rest of the world is deep in crisis, China reported economic growth. Not a lot, but some. We don’t know how many people died there. That information is kept strictly secret. China isn’t allowing an investigation of the Wuhan laboratory where the virus was developed. Eventually they will, but they have at least two full years for a cover up. We will never know what really happened there.

If China doesn’t care a lot about what happens to its own citizens, they care a lot less about the rest of the world. If Xi orders state businesses — all businesses in China — to bail Evergrande out, that will be for his own survival. Foreign businesses, especially the Hong Kong and Shanghai Bank, will get no support.

Will Xi bail Evergrande out? Possibly. He can’t do that directly, as that goes against all party doctrines. But he can easily circumvent that by whispering the word. We don’t know if he will, but he has very little option to do otherwise. Unless he really wants to see his own country literally go bankrupt. Together with the rest of the world, who then will demand compensation. So far not much has been said about the responsibility of Covid-19. But another, even bigger crisis, will be too much.

Do mind that Xi has a LOT of power already. Jack Ma was the founder of alibaba.com, and became a multi-billionaire. His wealth was estimated at 15 billion. He said something in public that displeased Xi, and disappeared for three months. When he reappeared, he was a completely changed man. Everything the party said was right, he was all in for the people, and donated part of his wealth to charities. His wealth now is estimated less than half. All taken over by Xi and the CCP. Imagine that happening to one of our billionaires, like Zuckerberg, Bezos or Gates.

There are more economic problems I didn’t address: a few weeks ago China closed all private schools. That used to be a multi-billion-dollar industry. Closed down overnight, especially foreign language teaching (English). Why? Xi Jinping wants Chinese children to be educated as their grandparents were under Mao.

China has enormous problems getting into the microchip business. The financial losses there make the Evergrande bankruptcy look almost benign. The Belt and Road Initiative is also a costly failure.

There is a huge chance China will look abroad to ease its problems. Germany did it in 1939. Italy and Japan a bit earlier. Argentina did it in 1982. Fortunately, the Chinese army isn’t ready for anything but a parade. In fair weather, that is.

Not that we have to worry about that. General Mark Milley will no doubt call his Chinese superiors if Biden wants to attack China. Let’s hope his superiors return the favor.

— H. Numan

23 thoughts on “Our Chinese Woes Get Ever Grander

  1. and the powers that now be want to use China as the model for what they want the USA to become. Cute, importing failure for the ‘good’ of the country. Maybe instead we should export those who are in government here to China so they can help to finish the job China has started.

  2. @ H. Numan

    Re: “There is a huge chance China will look abroad to ease its problems. Germany did it in 1939. Italy and Japan a bit earlier. Argentina did it in 1982. Fortunately, the Chinese army isn’t ready for anything but a parade. In fair weather, that is.”

    Upon what basis can that claim be made? Unlike the so-called “running dog” capitalists here in the ‘States, who are playing politically-correct ‘woke’ games with the once-vaunted U.S. armed forces, the People’s Liberation Army & Navy, or PLAN, appear to be quite serious about their military and its growth, development and professionalism.

    Moreover, if the figures I am seeing are correct, the Chinese Army is quite large, with 2.18 million active duty members, and a further 1.17 million in reserve. Just a bit south of 3.5 million personnel in uniform overall. Bear in mind those figures may be low-balled (intentionally understated), in order to hide the true extent of their force.

    Assuming the figure is accurate, a force of that size is nothing to take lightly. Especially since the Chi-Coms are willing to accept extremely severe casualties in order to realize their goals. How severe? Well, we know that in the 1950s and 1960s, in talks between our government and theirs, Chinese generals were open in willing to accept the loss of 200-300 million people in a hypothetical nuclear exchange with the U.S. or one of her western allies. We also know that the Chinese army used human wave attacks in the Korean conflict, spending her men in abundance in order to bring the fight to the U.S.-UN alliance.

    In short, the Chi-Com leadership in Beijing isn’t answerable to the public in greater China for the losses incurred in wartime. At least that’s been the pattern in the past.

    Western analysts smugly contend that the U.S. is still the unchallenged super power in the world and no competition in sight. Eighty or so years ago, that sort of short-sighted and myopic thinking led to the U.S. getting its proverbial clock cleaned at Pearl Harbor and a bunch of other places before the reversals hit bottom and the Allies were able to turn the war effort around to an eventually-successful conclusion. Let’s no make the same mistake again, shall we?

    History shows that the Chinese are formidable adversaries when aroused to fight. It is also critical that western analysts understand the psychological tack the communist party is taking to whip-up fervor against the United States and her allies: The party terms it “the century of humiliation.” They are referring to the roughly one-hundred year period starting in the mid-1800s when the great imperial powers of the West (plus Czarist Russia and Imperial Japan) intervened in Chinese affairs and had troops stationed on Chinese soil.

    The British kicked things off with the Opium Wars, and following the so-called “Boxer Rebellion” – an anti-imperialist, anti-foreign and and anti-Christian uprising from 1899-1901 – the defeated Chinese were forced to accept foreign troops on their soil in order for western powers to maintain security of foreign nations living in China, such as business people and missionaries. Britain, Germany, Italy, Russia, the U.S., and Japan all had forces on Chinese soil from the turn of the 19th century to the Second World War.

    To put the icing on that particular cake, Japanese began colonizing portions of NE China and Manchuria in the late 1920s and by the 1930s, Japanese and Chinese forces were already skirmishing. By 1937, the Second Sino-Japanese War had begun.
    This was overlaid upon the ongoing civil war between the communist Chinese under Mao Zedong, and the Nationalists or Kuomintang under Chang Kai-Shek.

    The Allies and the Chinese fought on the same side in WWII, but following the war, the western powers backed the Nationalists and not the communists, so when the communists drove the Nationalists to Formosa (now Taiwan) in 1949, the Chinese mainland again became adversaries of the West. A fact reinforced by the Korean War of 1950-1953, a conflict in which the Chi-Coms fought on the side of their North Korean proxies.

    “The Century of Humiliation” – regardless of how westerners see it – is very real to tens of millions, perhaps hundreds of millions of ordinary Chinese, thanks to an unrelenting campaign of propaganda waged over many decades. True, things seemed peaceful-enough between the regime and the U.S. for much of the 1990s and 2000s, but that was because they wanted something from us.

    President Xi Xi Jinping and the Party leadership now feel powerful-enough that they no longer need the U.S. Indeed, the U.S. is increasingly seen as an obstacle to China taking her rightful place in the world as the foremost global power.

    It is therefore extremely foolish to underestimate the Chinese as a potential adversary. True, they may not need to use kinetic action – a war of bullets, bombs and rockets – but they may not need to do so to attain their aims. Thus far, they have managed to subvert and all-but-conquer two once-powerful nations, namely Australia and New Zealand. And the U.S. is next on the menu. Xi must be licking his chops now that he owns Biden and Milley.

    In closing, it is vital to understand that the Communist Party of China already regards itself as being at war with the U.S. They’ve been war-gaming since the 1990s with the U.S. – in particular the U.S. Navy – as their presumptive opponent, and two senior (full) Red Army colonels penned the tract “Unrestricted War,” a study which examined how to defeat a “technologically-superior adversary” – a thinly-veiled euphemism everyone knows actually means the United States.

    We may not believe we are at war with them, but they most-assuredly believe that they are at war with us.

    • Logistics, and they’re Chinese.
      They won’t be terribly coordinated, or effective.
      However…Biden has clearly signaal’d his intention to do nothing meaningful, and destroy Western Civilization while doing it. And it’s still a hell of a lot of slopes to kill.
      Close. It’s real close.

      • As my Dad reminded me time and time again, the Chinks have more bodies than we have bullets. He was a survivor amongst 25 others out of a regiment.

  3. Great article except for the line about the Chinese military isn’t ready for anything but a parade. Think you are confusing the Chinese military for the American, which is now a woke joke and demoralised. The Chinese military is not woke, is well armed and in fact is the dominant military power in the world (its army, air force and navy are all the most powerful in the world), and is currently scaring the bejeezus out of Taiwan. Taiwan knows it cannot rely on America under Biden, China knows that too. The only power that can defend Taiwan is Japan, Australia is not a military powerhouse. But Japan is not going to risk a war with China, so will do nothing if China decides to seize Taiwan.

    • Wrong! The Japanese will fight if the the Chinks go to war with Taiwan. Because they know they will be next. The ruling class in Taiwan are Japanese, and the Japanese are not like us and will defend their own. Interesting fact for ya, the Japanese Imperial Navy is still operating under the Code of Bushido that the allies never could get rid of. The Japanese navy is expanding by the day, adding ships and subs by the month and the Japanese Army is in Taiwan as we speak putting anti-aircraft missiles and anti-ship/anti-small landing ship systems. The Japanese know what is at stake and thus are taking action despite the US clusterf**** taking place.

  4. I guess that’s what they meant by “Built Back Better”.
    They’ll be able to pull out and everyone else will be sitting there with the Bill to pay.
    And when everything is a Rock Bottom, they come back and buy it for a song and a peanut butter sandwich – if that.

  5. I wonder what impact this will have on The Great Reset narrative. I also wonder if this will not be the tipping point that some pundits have speculated about, namely, the crack that will let the light through and ignite the exploited masses, burning the house of cards.

  6. “We can’t blame them for the Black Death”
    Of course we can.
    “The authors in this new study say the plague evolved around the area of China over 2000 years ago and spread globally several times as deadly pandemics. They compared 17 complete plague genome sequences as well as 933 variable DNA sites on a unique worldwide collection of bacterial strains (plague isolates), allowing them to follow pandemics that took place in history around the world, and to work out the age of different waves of them”.
    https://www.medicalnewstoday.com/articles/206309#1

  7. Could not have written a better summary myself! Right on target. Alex Jones reported an unarmed nuclear ballistic missile fired into low altitude so Sidney could see it as a warning. This was done to reinforce Chinese threats that Australia had lost the “privilege” of being outside Chinese nuclear attack scheme. Red Dan is prbably trying to split his territory from rest of Australia and illegally closed the borders. He is expecting Chinese military support but his actions will also ally attack on Taiwan that is now all too probable. Expect fireworks over the next few weeks in the region.

  8. To many look a like’s happening in America these days , we all can still save our country but we must stand up against our politicians and vote them out of power while we still can.

  9. Culture and chemistry will bring that Communist septic tank down. The bad news is, they will be forced to start a war with Taiwan as a distraction. Those with means will book passage out and end up in British Columbia(where legions of them already reside), or here in Amerika. The Chinese I have been acquainted with over the last 40 years understand liberty and free-market economics. That is why they left Communism. We certainly live in interesting times. Bleib ubrig.

  10. Great read. Many thanks!

    Our local regional telecommunications giant here in the Great Lakes Region (who will remain nameless) saw great savings in salary, benefits, and pensions in hiring THE CHINESE in its computer ops Center, which I stumbled around in as guy who gets-his-hands dirty type

    “Old Hands” who knew the ropes, ‘puters, and programming at this facility were told: “Show the Chinaman what you do. He’ll have your job in two weeks. Don’t let the door hit you in the butt on your way out.” [And THIS is the “educated” thinking of the Harvard, Yale, and Princeton types running the show?]

    Needless to say, this did not sit well with the Midwestern MEN here–who immediately told their supervisors slinging out this hash to: “Stick it where the sun don’t shine,” and walked en masse.

    PANIC set in and panic it was. The Chinamen who were imported there wholesale there kept up a litany of “NO CAN DO!” in broken English. The outfit could not recover from this self-inflicted wound of stupidity.

    You don’t trash experience, knowledge, and good people.

    So “Senior Management” did what it always seems to do–promoted the cretins who hatched this scheme, closed the facility here, and re-located it to Little Rock, AR.

    The facility is now a bakery–I helped run the wires and pipes for the ovens; an easey-peasey job once the acres of ‘puters were gone.

  11. The stupid is so bad in THIS country, it hurts, but, I guess that kind of stupid seems to be rife the world over, including China. Thanks Baron, for an enlightening blog today. I always appreciate a little clarity, over the “woe is us!” routine. No wonder the Bible says that in the latter days, men’s hearts will fail them for fear. My brother-in-law recently told me of his every day living in fear, and I told him to forget it, and to just work the problem. It’s what I do. One can’t be effective as a running rabbit. Sooner or later the doom and gloom crowd on the internet is going to have to nut up or shut up. So, here we are, and I thank you for introducing some clarity, again.

  12. Great post, the sequel too to which I added a critical remark.
    The Great Leap? Yes, I remember: they built loos, holes in the ground.
    Before, they used to defaecate at their front door. So far for chinese civilisational standards.

  13. Thanks H. Numan for the article. Follow-up article about China was interesting as well. Minor point – Money invested @7% will not double in 7 years. It’s around 10 years. The Rule of 72 is helpful to remember: Divide 72 by expected interest rate to estimate time of original investment to double (ex. 72/7 ~ 10 yrs).

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