In China, for the fifth month in a row, REAL prices are falling – considering whether we will feel the hangover of such construction
LRYTAS.LT BUSINESS MARKET PULSE
In China, real estate prices are falling for the fifth month. This market seems to be in crisis, or is it too early to write such a verdict? Will the hangover of construction hardship, which has grown at an unbelievable pace, be felt by the whole world, including Lithuania?
This was discussed in the news radio show "Between the Four Walls" with columnist Ramūnas Bogdan, according to whom the very structure of the Chinese economy is one major crisis during which the country is growing. "Nobody knows exactly where they're drawing the numbers from. But what remains is to believe their statistics and all the side data," commented R.Bogdan, who has visited this country on several occasions. In August last year, a very large bubble burst in China when one of China's largest companies, which is on the list of the 20 largest companies – the holding company Evergrande – admitted that it was indebted to $305 billion in debt. US dollars. In order to understand the scale of the debt, it must be remembered that Lithuania's budget is about EUR 50 billion. US dollars. "Fiction," the reviewer said. In his opinion, the reasons for the situation are human greed and the desire to grow as soon as possible. Not a single one who started their lives half-heartedly like Hui Ka Yan, the founder of Evergrande, who was born into a lumberjack family and was a child raised by his father, wants to leave such an experience in oblivion.
After graduating from Wuhan, Hui Ka Yan moved to southern China, a historically very business district, and more specifically guangzhou, through which all trade in a wide variety of goods was going from south China. Hui Ka Yan studied at a time when China's famous economic reforms were being launched. Deng Xiaoping, china's then leader, said: no matter what color the cat is, it is important that it catches mice well. According to Bogdan, this means: everyone is doing some business and charging money. The Chinese believed it and bravely did so. Hui Ka Yan founded Evergrande in 1996. As the reviewer, who started with nothing, told us, the entrepreneur brought the company into an absolute giant: the assets of the largest company in the American construction sector amount to EUR 21.8 billion. In 2007, the company's assets amounted to USD 369 billion, while Evergrande's assets amounted to USD 369 billion. Usd 100 million. This means that it is 18 times larger than the largest construction company in the UNITED States. Enlargement takes place with constant borrowing from banks, domestic and international markets.
"Evergrande currently owes 171 Chinese banks, not to mention how much it owes to people who have paid in advance for housing they no longer receive because of a funding crane. The reason for this is President Xi Jinping's new economic policy. It also has to do with his political attitudes," Bogdan said. He said Xi first launched a campaign against IT companies. But while the founder of Evergrande is a man very loyal to the government, a campaign has also begun against these giants because the president felt they had become too powerful. And in fact, they are developing models of Western business with certain Chinese deviations, they are too pro-Western and not as loyal to the Communist Party as they would like. "I would like to remind you of an analogy with Putin here. In his time, he declared war on oligarchs: the number one oligarch Mikhail Khodorkovsky was convicted, and his Yukos was completely torn apart. Similar things have begun in China. The it giants were the first to hit," Bogdan said. Now in China, he said, people are being urged to complain: if they just see it, they write a complaint, it is being investigated, and businesses are burdened with crazy fines. They cannot be paid, firms go bankrupt, and the accusations come to absurdity. For example, a company can be accused of creating a mobile app that brought you fresh food.
"In such a light came the turn of construction companies. In the Chinese economy, the construction sector accounts for 29% of gross domestic product (GDP). With such a sector, they have a rather distorted economy. For example, in Lithuania, where the construction sector is quite well developed, it generates about 8% of GDP. However, the figures speak for themselves – there are currently 65 million people in China. empty apartments that no one needs: they could lead the whole of France. Construction is not about construction, it is about absorbing money. I myself have seen the crane forests that make a huge impression, but it turns out that all this is just an image, and there is no economic basis underneath all this," the reviewer said. Construction in China goes like this: to build a block, you need land. It is governed by the provincial government. This developer sells land and earns a lot. If we add millennials in China to the traditions of corruption, there are a lot of people around who, according to Bogdan, who make a profit from it all in person. This means that there is a huge incentive for the Chinese authorities to make construction as much as possible and what will happen when it is built – they are not motifs because they are built by private companies. "The government gets its share into the budget, its share is in their pockets, and they're very good at it," Bogdan commented. The development of the RE sector is also driven by the banks that distribute the loans themselves, as China is undergoing apparently the largest population migration in history, with around EUR 0.5 billion. people move from villages to cities. "As things get accelerated with them, the processes start to get stuck – they are in such a hurry to live, to overcome the backlog they endured until the 70s of the 20th century," the reviewer considered. However, the stalled affairs of the construction sector are causing a chain reaction: since there are millions of people in the army working in construction, we have to turn our heads around what to do with those 'who create those 29% of GDP that no one needs'.
Another thing is that construction is served by a large number of other sectors. It is estimated that if land sales in China fell by 30% and house sales fell by 15%, the country's GDP would contract by about 4.1%, "which is quite serious," said Bogdan. There is also the banking sector. The Chinese authorities have already warned Evergrande not to dare to go bankrupt, as writing off such debts would leave banks with terrible holes. This, in turn, would cross over the yuan. The central bank is trying to rescue the situation - last month it decided to cut interest rates abruptly to strengthen its stifling housing purchases. However, people's distrust of such actions arises.
China is already shaken by the RE crisis – the waves that have arisen there may come back to us: prices are falling, sales are falling Evergrande has not made a payment to creditors for the first time, and since the Scandal in August, about 40 Chinese construction companies have fallen on the verge of bankruptcy, as the authorities have indicated that it is enough to distribute credit to them. "That ban, mixed with mistrust, further reduces the ability of companies to borrow while increasing construction costs. Even if you can take out a loan, the question is whether you will be able to afford a home," commented Bogdan, adding that the Chinese, like Lithuanians, strongly believe in the importance of the purchased housing: about 90 percent. Chinese families live in their own dwellings.
Source: In China, for the fifth month in a row, REAL prices are falling – wondering if we (lrytas.lt) will feel the hangover of such construction