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I must admit to a case of déjà vu.
Surely, I’ve seen this happen recently.
And, of course, turns out that I had.
Another day, another Chinese property developer collapse. Simply replace Evergrande with Country Garden!
So, what is the problem this time? On the surface it appears we have a confluence of events.
Recent news suggested that Country Garden, Chinas largest property developer by contracted sale since 2017, missed bond coupon payments to a group of external investors.
The reason given is the utter collapse of Country Gardens primary property markets in Chinas biggest secondary cities.
Not to be outdone by its rival, Evergrande took their place on the front of the world’s news media by declaring its US listed company for bankruptcy.
This on top of ever-increasing concerns that the Chinese economy is stagnating.
And what’s the Chinese Emperor Jinping doing while his Rome is burning?
He’s receiving awards outside the mainland. Is this his Nero moment? Something like former US President George Bush and his Hurricane Katrina moment?
And what if China collapses?
What should you do?
To my mind, it comes down to this.
One day, these property developer troubles will be just that, big trouble.
But that time isn’t now.
Read now as we examine, using this latest example, of the wisdom a bit of perspective can provide you.
Can the emperor play while Rome burns down around him?
As best as I can tell, here are the facts as they appear on the ground.
Remember that anything reported from within China for global consumption must be taken with a pinch of salt. But it’s the best we have right now.
Country Garden is sitting on potentially $300 billion AUD worth of debt. Apparently over 1 million flats are yet to be delivered to homebuyers who used their own money and that of their families to secure mortgages to buy.
The fear here is it may result in the developer having to sell existing stock with a 50% or greater discount to meet its liabilities.
Another concern is the viability and liquidity of many of Country Gardens overseas investments.
Projects in Singapore, Vietnam, the Philippines, and Malysia are now at risk of defaulting due to the company’s inability to meet monthly payments on its borrowings.
This places Country Garden in stark contrast to Evergrande.
Evergrande’s problems were wholly within the Chinese domestic market. Contrary to most reporting on the matter, Evergrande’s debt issues had a very small risk of causing a contagion risk across the globe.
But even this was small mercies. After Evergrande acknowledging its liabilities totaled close to $300 billion USD, further investigation by authorities quickly upgraded that number closer to a staggering $500 billion USD.
It is quite possible that, once these findings were made public, the company decided to file for chapter 15 bankruptcy for its US listed assets.
Source – The Guardian
Take a moment now and reflect upon a largely state-owned Chinese enterprise using the bankruptcy laws of its deadly rival to protect its US located land holdings.
Delicious really.
All this is doing however is further compounding the narrative surrounding internal issues with Chinas economy. The whole world spent the first half of 2023 looking longingly at China as it broke out of its self-imposed covid lockdowns and re-engaged with global trade.
Here was the answer to many countries’ own lackluster efforts to promote business, economic growth, and curb runaway inflation.
Well, it hasn’t really happened like that has it.
If you believe the press, over the past few months, the country has slid into deflation, its trading status has been derailed by a massive drop in both exports and imports, direct foreign investment has plunged and the corporate titans like Evergrande and Country Garden are floundering.
And while they are on the ground here, kick them again with 20% youth unemployment.
For those awaiting a tsunami of government mandated stimulus, only two anaemic interest rate cuts were provided.
On the surface, this is shaping up as an epic disaster.
Clearly then, the leader of the CCP needs to be right out in front of this, charting a new course for his country and showing the requisite leadership demanded of the leader of one of the world’s most important economies.
Well, President Jinping is out there – literally. All the way out in South Africa.
Source – CGTN
On the surface, it appears a curious tactic for a world leader to pull.
While the center of Rome if you will continue to burn to the ground, your President goes halfway around the world to receive fake awards.
Is the Chinese President simply another Nero here?
Time to see all this through the lens of the 18.6-year Real Estate Cycle.
What if China is actually…ok?
Here are my thoughts. Can things really be as bad as the media would like you to believe if President Xi is instead away from the politburo and travelling to South Africa receiving fake awards?
It hardly screams strongman dictator at the wheel determined to steer his country through its latest self-inflicted crisis. Not that Xi Jinping needs to win any sort of popularity contest back home in an authoritarian state.
But as I stated to you from the beginning, we’ve been here before, back in September 2021 and Evergrande’s debt problems.
Source – The Guardian
Talk back then was of global contagion and a massive credit crisis as funds across the globe called in their loans and bonds defaulted.
I also recall what PSE’s view on it at the time was. It was this.
Meh.
Sound condescending? Perhaps even arrogant?
Let me ask you; has the world changed since September 2021? Did you experience anything materially damaging to yourself or your personal finances since then?
Exactly.
Do we have a case of double jeopardy today though?
If you believe the media, it’s Country Garden that will bring everything crashing down. Will it be different this time?
Make no mistake, within China this is a big deal, and you can’t help but feel for ordinary Chinese citizens who are left badly affected and paying mortgages for homes that aren’t complete.
Here’s the thing; right now, the debts don’t matter.
That’s right. And what justification do I have to make such a determination?
It is simply because I can remember the future. While there is latent capacity in global debt markets to refinance these debts, then this is exactly what will happen. Note, just like back in September 2021, what type of collateral isn’t being offered to creditors?
It’s their landholdings. Evergrande just went into bankruptcy to specifically protect them!
Can you show me even one article about these Chinese companies where the author ever mentions this?
If you ask me, your choice is stark. The only way to safely survive the next few years is by having access to a service that places land at the centre of its research. Which, by extension, makes what’s happening in the world now and specifically the timing behind it crystal clear.
The path to that level of clarity starts here – with membership of the Boom Bust Bulletin (BBB).
Give me the opportunity to take you in depth into the cycle.
Learn about the history of both the 18.6-year Real Estate Cycle and the real reasons why interest rate rises, house prices, and stock markets are so indelibly linked.
It will teach you how to decipher the news that we get bombarded with every day to focus solely on what truly matters.
No more negativity and noise, just the science of the economic rent and the timing inherent in the real estate cycle.
This is all you need to succeed.
If you happened to have been a PCI member back in September 2021, you would have received this newsletter from me in your inbox.
I strongly urge you to read it.
Because we are about to see history repeat once again before your very eyes. The same playbook that Evergrande used then will be rolled out again by Country Garden.
Let me sum up that playbook. From that newsletter above.
“Saba Capital Management, Redwood Capital Management, Contrarian Capital Management and Silver Point Capital are among funds that have built positions in offshore bonds of China Evergrande Group’s ahead of a likely default of the real estate giant.
The four investors are among the credit funds that took a position in Evergrande’s $19 billion dollar-denominated notes in recent weeks, as prices fell to about 25% of face value…”
It is not time yet for the complete collapse of the financial system that the media is trying to preach.
Instead, way out of sight of the world’s media, talks with fund managers both within and outside China are currently ongoing with a view to containing the damage. This is why the Chinese President is away touring the world.
When debt like this can be refinanced and fund managers are eager to pick up the bargains on offer it’s not possible for the land market to collapse.
But that day is coming. These issues will be pushed down the road for now, and China will recover. But soon, these will become an enormous risk to the global economy when the time is right.
And you can guarantee as this all unwinds eventually you will not hear anything about it. Instead, the Chinese President will be having more fake awards given for the “outstanding” job he’s done to turn his country around.
Only knowing the timing of the land market can possibly help you when things turn bad.
That’s how the BBB can help.
As a Boom Bust Bulletin member you will receive 12 monthly editions a year detailing all the key turning points of the cycle, a deep dive into the most important markets across the globe and ways that you can personally benefit from this knowledge.
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Best wishes,
Darren J Wilson
and your Property Sharemarket Economics Team
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This content is not personal or general advice. If you are in doubt as to how to apply or even should be applying the content in this document to your own personal situation, we recommend you seek professional financial advice. Feel free to forward this email to any other person whom you think should read it.