The censoring is so horrible that Chinese are using other country's name to substitute China. For example, there is a question in Zhihu, "Will China become the next technological powerhouse?". The answer is talking about Russia literally, but it's about China. (Below is the answer translated by deepl).
I don't want to talk about China, I want to talk about Russia.
Can Russia become the next technological powerhouse? Of course not.
Because the ceiling of Russian intelligence or wisdom is Putin. There is no one in Russia who can claim to be more intelligent than Putin. Russia can do without anyone, but not without Putin. Although we do not know whether Putin has any relevant qualifications or experience in the industry, all Russian businesses and professions depend on Putin's guidance and must hold up Putin's ideas and banners, otherwise they will not be able to move forward. Putin is the ceiling of Russia. How can a country with a ceiling become a technological powerhouse?
Look at the United States. Who dares to direct the work of Musk, whether Trump or Biden? Who dares to direct the business strategies of Apple and Google? I find that in the US, it seems that anyone can say they are smarter than the president, it seems that anyone can say they are smarter than the president. The technology companies in the US seem to be able to run smoothly without the guidance of Biden's ideas, and they seem to be able to develop technology without raising the banner of Biden's ideas, and they seem to be doing quite well. I find that the US is a country that has no ceiling in terms of intelligence or ingenuity, and that is always improving. Only such a country can become a technological powerhouse.
I know this is supposed to be about China, but is true of Russia and many poorer countries. The elite of the country can siphon money of simple industries like oil and primary industries, but they can't control high tech. Kamil Galeev writes some great threads on this https://twitter.com/kamilkazani/status/1501360272442896388
Not without stretching the narrative though - he shows the images of Mexican mafia with armoured vechicles and guns and then arches towards calling Russian oligarchs and friends mafia: those don't rely on armoured vechicles and guns but on connections inside the Russian Federation state, making the whole piece somewhat dubious.
Oh, I think the articles theme is mostly bunkum armchair theory. Reads great, but is nonsense. The author’s premise is that:
* oil+gas are not complicated
* metallurgy is somewhat complicated
* a drilling machine has a very complicated dependency
Like, duhhhh, oil+gas is fiendishly complicated (drilling, transport, refining, organisational), with extremely complicated (and often single-source) dependencies; certainly more complicated than the CNC-machine-needed-to-make-a-mining-machine small business example. “Metallurgy” is complicated with complicated dependencies too (although plenty of Russian expertise available). Both of those are massive industries with very deep complexity.
The story also has a strong “geek inherit the earth” narrative - which always scores well with engineers here on HN.
The “mafia” metaphor didn’t work for me either.
It does make me wonder who the author(s) want to influence and why?
But still, I liked the links, I liked the story, and they wrote well (I am guessing English wasn’t their first language?).
The product of tech companies is the tech itself. For oil, the tech is a means and can be imported. Drilling oil is technically complicated but you can hire foreign companies to do the hard work, just like most African nations. Russia relies heavily on foreign companies to drill oil.
From my own writer's experience, finding good images with reasonable licensing is hard. Unless you want to pay significant royalties (which may sink your writing activity to unsustainably deep red numbers) or risk being target of a copyright troll company, you are stuck with free and libre images, which often do not cover exactly what you want to.
Not disagreeing, but that's not what's happening in the article: those pictures of Mexican cartel army are precisely about Mexican cartel army and not random stand-ins. And I think the author is making a very interesting point. That point is not at all about armoured vehicles and guns, it's about extractive business as opposed to something more complex. The claim is not that Putin generation oligarchs use the same cars and guns Mexican cartel power uses, it's that oil and gas have a lot in common with avocados. And that's a really valuable observation.
The weakest link is the actual application of a discovery in real life.
Brilliant scientists can be apolitical and so isolated from the rest of the society that they don't even realize what's going on. Notably, the Soviet Union produced a lot of excellent results in mathematics and physics.
But when it comes to designing and selling actual products based on the theoretical discoveries, the inefficiency, stupidity and mendacity inherent in the authoritarian systems really comes to the fore and can't be dodged.
I suspect that they will "merely" need to instill enough propaganda and "brainwashing" politically onto academia such that those who have the knowledge and skill would not go against the CCP.
This effectively restricts the talent pool - those who are smart are likely able to see thru any propaganda. And those that are smart are also more capable of emigrating overseas where you make more money anyway.
So it's not about stifling, but more about slowness. But with a large enough population, even a smaller % of talent is still a huge number.
> This effectively restricts the talent pool - those who are smart are likely able to see thru any propaganda.
This is rarely true. People can be, and often are, extremely smart in one field and idiots in others. The fact that they think otherwise is often part of the problem. Especially since propaganda is often layered - everyone knows something is propaganda, but that doesn't help you understand the truth, and there is often subtler propaganda that guides those who see the blatant propaganda to the "right truth".
Jack Ma was a figurehead and didn't know anything about tech (see his interview with Musk).
Musk has a very deep understanding of tech of his companies (at least for a CEO), so are most other American tech CEOs. As was pointed out, you can't siphon away tech like you can do with oil and other commodities without making things stop working.
> Musk has a very deep understanding of tech of his companies
Like with his white paper for the Hyperloop which was fundamentally wrong and couldn't have worked? Or with his idea of putting Hyperloop segments on.... Wheels? Or with his idea to make the whole rocket reusable, until SpaceX accepted reality and pivoted to at least partial reusability? Or to cite current examples: full self driving that doesn't actively kill drivers when...? And while I'd love to have one, his idea for that household robot is straight out impossible with current technology.
If anything, musk is an example of the parent, as all of his companies improved after they got over his original technical ideas.
I don't understand why people keep wanting to put celebrities on high pedestals with completely unrealistic expectations. He's a successful businessman and extremely talented influencer, he has enough achievements to his name without randomly adding more to it.
"Or with his idea to make the whole rocket reusable, until SpaceX accepted reality and pivoted to at least partial reusability?"
What do you dislike about this particular idea? It is not inherently wrong, it is "only" very technically challenging.
What SpaceX did was not a pivot, rather introduction of an intermediate step because full reusability proved too hard at that point. But they never gave up on the ultimate goal of full reusability and the Starship rocket that is now under development is intended to be fully reusable.
It's not that I dislike the idea. it's just simply impossible to do so with combustion engines/rocket engines that carry any load. The energy expenditure to reach LEO is too stressful to materials known to man, and the tiniest issue causes full destruction.
It will always be more effective to recreate relevant parts instead of full disassembly, in-depth quality assurance and then reassembly
These predictions do not tend to age well. I am not an aerospace engineer, but Starship seems to be fairly hopeful.
Already Falcon 9 shows that you do not need to fully disassemble engines etc. to be sure that they are OK. A static fire with enough sensors will do, and nowadays they don't even do that.
If you look at the table of booster reuses of Falcon 9, failures happen, but they are infrequent.
Musk has a "I am very smart and thus can never be wrong"-problem, has gravitational bending amounts of arrogance, and seems to have some personality issues. But he's not stupid or ignorant, and has a better understanding of tech than most CEOs. I don't think that's putting him "on a high pedestal".
Well, SpaceX is quite notable for how swiftly it alters its designs and abandons semi-finished work if a better idea comes along. Few technical corporations avoid the sunk cost fallacy as efficiently as them. They seem to be absolutely willing to throw away an expensive prototype and innovate again if it makes technical sense.
Musk has a lot of negatives and comes off as arrogant sometimes, but I never heard a story about him forcing the SpaceX engineers to keep some design flaw there because it was his precious idea and thus can't be wrong.
IDK about Tesla, I am not that interested in cars.
Munro Assoc's teardowns and analysis suggest that Tesla both innovates and increments at an astonishing clip. Tesla makes plenty of mistakes, for sure. Often existential. Like attempting fully automated manufacturing. But somehow they manage to pivot.
One notable exception, that I'm aware of, is Telsa's full self driving car effort, especially without LIDAR. That one baffles me. So stubborn. While it might have been about cost at some point, expense and risk hasn't deterred Tesla's other audacious moon shots. Like investing in the gigapress to make huge castings. Total game changer.
Tesla's AI team was recently sacked. I'd love to know the inside baseball. Does it signal a change in strategy? Were they pushing back too hard, like maybe insisting on adopting LIDAR? Maybe Musk just wanted a fresh team for fresh start?
I think the reason would be very revealing.
--
Like you, I also have little interest in cars. But I'm junkie for all the process, improvement, Peter Drucker, Edward Deming type stuff. And right now that means trying to figure out what TMSC, Apple, Haier, Tesla, and SpaceX are doing.
I don't care if Musk is a genius, poseur, whatever. If I did care, regardless of his past actions, I'd worry about his escalating self-destructive behavior sabotaging Tesla and SpaceX going forward.
Musk very obviously has to live right on the edge of chaos, always has to double down.
Musk's compulsion sorta reminds me of cyclist Graeme Obree. https://en.wikipedia.org/wiki/Graeme_Obree The way I heard it; part of Obree's internal drive, beyond all ration limits, was he truly believed he'd die if he didn't succeed. Literally racing for his life.
From a very far away, I wonder if Musk's mania is like Obree's in some ways.
A few years back a popular claim was that Musk is personally programming features into the Tesla codebase.
Whether that actually happened or not isn't that important but the fact that people thought it was a good thing always struck me as odd. It's really bad if the boss of a multinational company focuses on such minute details and hints at major management failures.
All signs point to him being a very talented businessman and organizer who manages to get a lot of people producing innovative and popular products. It seems like people underestimate just how much of a challenge that is and feel the need to "give" him some more tangible skills.
He has good understanding of the broad strokes of their technology and carries the vision forward but an Engineer-CEO he isn't and shouldn't be.
> Musk has a "I am very smart and thus can never be wrong"-problem
Outside his own domains of expertise he certainly comes across that way, but he does also say "yeah I reckon there's only like a 60% chance of our latest rocket not exploding".
I will not deny that he spouts a lot of nonsense, but I would like to point out that all the famous old-school rocket companies also spout a lot of nonsense, the difference is they deliver even less of their less ambitious goals than SpaceX does.
Maybe Zhang Yiming and Colin Huang are better examples? If not, there are plenty more. The fact is that extreme centralized economic planning is the enemy of innovation.
This is a common legend, but it's hard to accept. China is way more innovative than much of Europe for example. The USSR was actually an extremely innovative place as well.
Also, huge corporations are themselves extremely centrally planned, and that is where much of their strengths lie. There's a reason why Apple was able to capitalize on the smartphone, and it wasn't some market of suppliers.
The problem with centralized planning is that it tends to ignore many local concerns, often with disastrous consequences, especially when leaders start to ignore any feedback from below in their central planning. This has caused the downfall of innumerable companies in various markets, but there is usually another company to take their place. When used by countries, it causes famines and other avoidable disasters, as happened in much of the USSR and China, especially under Mao's monstrous regime.
But when done right, as it was in China after the 90s and before the Pooh, it has also caused the single biggest reduction in poverty in world history, measured by number of people.
> when leaders start to ignore any feedback from below in their central planning. This has caused the downfall of innumerable companies in various markets
this is called genba-ron (現場論) in japanese, and is part of the 3 g's (Gemba, Genbutsu, Genjitsu) that you learn in manufacturing (but can be applied genrally as well)
basically you cant dictate things from afar but must empower those on the ground (genba) because only they see the actual things (genbutsu) going on and the actual results (genjitsu) of policies...
I think you meant WAS more innovative because it was opening up AND was becoming less dependent on central planning. Then Xi came along and single-handedly ruined nearly everything including the One China Two Systems policy that was carefully laid out by Deng Xiaoping.
Imo as you've mentioned if a leader like Xi, a Mao regressionist, didn’t take power and instead someone like Jiang Zemin took it, China would have likely passed the US in innovation by now.
to be fair the backbone of the economic engine, real estate sprawling and the "hustle corruption" (really low wages integrated by bribes) and other cancerous issues were literally crearted/reinforced by jiang zemin / hu jintao. XI tried too late to change some things like education for profit (with political objectives) but his approaches were stupid and looked more like a political stamp down on rivals economic bases leaving the country to suffer
> China is way more innovative than much of Europe for example
Of course they are, having built upon stolen EU and US tech and having trained their people in the West. But they learn fast and incrementally improve those designs. The difference is the Russians had their very own designs. Even in electronics, their concepts are fundamentally different from western concepts.
> having built upon stolen EU and US tech and trained their people in the West. But they learn fast and incrementally improved those designs.
its the way for many successful countries... the u.s stole tech and ignored patents from england/europe to a great result, same with korea and japan and taiwan (with regard to "the west") etc... its not unusual
Yea this is true, it’s just annoying that they do that and then boast as if it’s their own technology while screaming about the virtues of their State, which, is inarguably inferior on this particular point given that in order to advance in technology they must acquire it from superior economic systems.
Of course, all innovation is built on copying and improving others' ideas. Calling this "theft" is as absurd as saying that the Greeks "stole" mathematics from Ancient Egypt, or that Renaissance Europe "stole" natural philosophy from the Islamic world (who in turn "stole" it from the Greeks etc).
In the era there is no royalty system at all. The moment royalty was introduced, it was unfair, unequal, already with a clear economy and political agenda.
China’s population is double that of Europe, so China would need to produce twice the quantity of innovation to be comparably innovative. I’m not saying it doesn’t achieve this, but we should be wary of comparing two places with vastly different populations.
> But when done right, as it was in China after the 90s and before the Pooh, it has also caused the single biggest reduction in poverty in world history, measured by number of people.
This was largely China moving away from a planned economy and toward a more market oriented economy. Also, you have to take care about how you measure “largest reduction in poverty” here as well because poverty was declining all over the world at the same time, largely driven by advancements from the capitalist west and globalization. I’m sure economic planning can be credited with something, but the key element was “allowing western money to pour into the country” which looks a lot more like capitalism than central planning to my eyes.
> This was largely China moving away from a planned economy and toward a more market oriented economy.
Possibly, though they still retained much more control than the capitalist economies they outgrew.
> Also, you have to take care about how you measure “largest reduction in poverty” here as well because poverty was declining all over the world at the same time, largely driven by advancements from the capitalist west and globalization.
That is not true. The rest of the world outside China has remained at the same or worse poverty levels, largely.
> I’m sure economic planning can be credited with something, but the key element was “allowing western money to pour into the country” which looks a lot more like capitalism than central planning to my eyes.
If China had played by free market rules, Huawei, Alibaba and Xiaomi would not be competing with Samsung, Apple or Amazon right now. A large part of China's advantage came from the state using its negotiating power to force foreign companies to trade their IP for cheap manufacturing, thus propelling China's intellectual elite back from the dark age that it had been plunged into. Individual Chinese companies probably lost profits for a long time because of this, and much more US, Japanese or European money would have pourn in if they didn't enforce this policy; but, they would be much poorer today.
Edit: note that China is and has always been a capitalist country. They were centrally planned state capitalists, and have moved somewhat in the direction of free market capitalism. But there has never been a period in China's history when production or wealth were democratically controlled.
"The rest of the world outside China has remained at the same or worse poverty levels, largely."
This largely is doing a lot of heavy lifting here. Specifically, many countries in southeast Asia, geographically close to China but using different societal models, have grown much, much richer since 1950.
South Korea, Taiwan, Vietnam, Thailand, Malaysia, Indonesia have nowadays much higher living standards than they used to have.
Jack Ma is just one example. The CCP went after celebrities more recently. No individual or organisation in China should be allowed to be more popular (or powerful) than the CCP in their view. That's why they went after Falun Gong decades ago - it had more practitioners than the CCP had members.
Ah have to be careful mentioning Falun Gong now. No one seems to understand that until the CCP crackdown it was a harmless group of old people. And after the CCP got worried by the growing numbers that all of a sudden they are a terrorist organization with a bad history and all this bad stuff they believe pops up.
It's just propaganda. The terrorist organisation is the CCP themselves, they're the ones who ordered the terrorization, imprisonment and torture of Falun Gong practitioners and allowed the proliferation of organ harvesting. They're probably doing the same with Uyghurs.
Interestingly, in Tsarist Russia, the censors allowed the future Soviet dictator Lenin to publish his criticisms of imperialism as long as he didn't mention Russia; he complied by choosing Japan as an example. But everyone involved, including the readers, knew that he really meant to address Russian imperialism.
Technically, the world has changed a lot in the meantime; there wasn't even a public radio service in Tsarist time, and now we have the Internet. But the problem of censorship and various ways to circumvent it seems to be the same as before.
The answer above has been deleted, but this answer is even better. Replace US with China. But to understand it, you need to be familiar of modern Chinese history.
1. The United States has not been fascist until recently, but has been a fascist state since its founding. However, the US has not always been so fascist since its founding, and there was a period of relative normality during the Reagan years. In contrast, the fascisation of recent years has been particularly striking.
2. In terms of internal causes, the relative openness of the US was due to the fact that the McCarthy movement had gone too far and not only did the people become unhappy, but eventually the government became unhappy. So there was a temporary social consensus that fascisation had to be curbed. However, Trump himself was not a victim of the McCarthy movement and has been in good government since its end. He therefore did not personally resent it much. And in order to preserve the shining image of the Republican Party and to put an end to the leftist media of the Democratic Party engaging in the practice of Fake News. When Trump was in office, he directly disallowed statements that publicly denied the history of the Great Depression to the McCarthy movement. In this way, the new generation in the US also became predominantly favourable to the McCarthy movement, promoting the return of fascism to American society.
3. Externally, the US has been eager to strengthen its control over Canada, Mexico and Cuba, the 'backyard' of the US. This has not only caused resentment among the local population, but has also been widely criticised in international public opinion. If you talk about the Wilson Doctrine at this time, then the scandalous things you have done in the US are in themselves the opposite of what you want to do. The theory you preach turns out to be a slap in your own face, and you might as well not preach it at all. Instead, by picking up the ragged flag of fascism, you can explain the justification for these hegemonic acts of the US. And so its propaganda tone leans more and more towards fascism. This is the reality that needs to dictate the discourse.
Very clever. I love how he’s able to talk about the Cultural Revolution, Trump, and the One China Two Systems policy veiled in US history. Pure genius.
I still prefer the Russia and Putin on though since it’s more specific to Xi.
This is a quite uninformed perception on both xi and Trump. This is so ridiculous that it can only mean that it's made by someone who is ignorant of both Chinese and US pilitics.
>Externally, the US has been eager to strengthen its control over Canada, Mexico and Cuba, the 'backyard' of the US
This is so true. China has either directly invaded or has bad relations with every one of its neighbours. Even the communist ones. Even those seperated by sea. Only reason why this bullying is tolearted is because they are rich now
It looks to me that China has decent relations with Russia, Mongolia, and even central asian Kazakhstan/Kirgisia/Tajikistan (of course there are some ethnic and economical tensions dragging this back, not to mention the issue of Uighurs who are related). China also has good relations with Pakistan.
Mongolia is an interesting case. Its independence is guaranteed by Russia, otherwise China would likely have swallowed it in the 1950s or so, much like Tibet.
But Mongolia, sitting between two authoritarian powers, is nowadays a stable democracy with regular transfers of power between opposing parties.
I wonder if this can last. Their best chance is actually the fact that they aren't very prominent on the international stage and probably not worth a conquest or hostile takeover right now.
* Colonizing by almost of the world's super power. It's like being abused by US China (todayas China) Russia France UK Germany etc. Think a moment how can a nation today fend off these powers and remain an integral nation. Yet, China managed to do that.
* During WW2, China faces Japan, China essentially is an agrarian society facing an advanced industrial nation Japan, with considerable resources and man power. China almost lost 1/3 of its territory. Yet the nation standed up, and emerged more coherent and unified than before WW2.
* The so-called insane CCP managed to install strong control over Tibet and Xinjiang, right after WW2, right under the threat of USSR. The ability to manipulate Stalin, is indeed insanely smart.
* CCP fought a series wars after WW2 never lost, and have all succeeded to achieve it's political objective. Indian border war made sure India as a nation lost its aggression towards China for half a century, Korea war installed a fear and awe by us military men towards Chinese army; the Vietnam war effectively ensure no single nation able to challenge China's long term superemcy in South East Asia.
* They are the only equal partner in the cold war containment over USSR, basically practiced the strategy by their own strategic initiative and offered proactive support across the globe for that strategy to work.
* They initiated opening up and internal reform, transformed 1B people from a USSR style economy into the second largest in USD number, and the largest in purchasing power. Where as the same reform effectively triggered the collapse of USSR, which had 1/4 of the population of China.
* They effectively are challenging US supremacy in all aspects and are winning in many. Basically unimaginable since 1920s.
Call me stupid, but I think they are not only sane, they are probably so sane that random people like you are not able to grasp their genius...
> the Vietnam war effectively ensure no single nation able to challenge China's long term superemacy
I hope you realize that China flat out lose this one?
> They are the only equal partner in the cold war containment over USSR
This is not true and embarrassingly so. That's like Mazepa declaring himself the only equal partner of Charles XII (google it up). Triple embarrassing for chinese communist party. Probably fourthly embarassing in the context of USA "containing" China right now.
Although Vietnam continued to occupy Cambodia, China successfully mobilized international opposition to the occupation, rallying such leaders as Cambodia's deposed king Norodom Sihanouk, Cambodian anticommunist leader Son Sann, and high-ranking members of the Khmer Rouge to deny the pro-Vietnamese Cambodian People's Party in Cambodia
China caused Vietnam to suffer from serious economic and military hardship by threatening to launch a second invasion, and by supporting Pol Pot guerrillas in Cambodia.
Although unable to deter Vietnam from ousting Pol Pot from Cambodia, China demonstrated that its Cold War communist adversary, the Soviet Union, was unable to protect its Vietnamese ally.[19]
China had a sadistic crazy butchering ally, they've failed to keep that ally regime from being toppled by Vietnam, China has invaded Vietnam but was met by stiff resistance and had to retreat (which looks much more like a defeat rather a draw, especially given the difference in size between parties) and of course China no longer had the Cambodia - Vietnam did not occupy it either but I'm not sure they seriously planned to.
I'm really weak in that kind of history so I may get everything off, but that's what it looks from the outside.
Yes this person expresses well the current atmosphere, I say that living in China surrounded by this low key annoyance at both the communist success (like, it s an old country, what have we done the last 6000 years and who's now feeding people instead of slaughtering them and discussing if the army or civilians should continue exploring the moon) and their flaws (at the same time they re just taking better care of the sheeps, not turning us into trusted empowered citizens)
It's not the same game at all between us and the americans. The americans arent trying to play 5D chess on a falling giant towers firefighting one problem while creating 10 others. Americans and the rest of the world quite frankly, tolerate suboptimization while we believe, or rather the communists pretend they believe, that we can reach an optimum: no crime, everyone agreeing, everyone patriotic, win every competition of any sort, sky always blue, world always rotating around us. So we control, every angle of every mirror. If it was a choice, like in my home country, France, to go another way than the americans, it'd be fine-ish, but no one here can claim that, so we cant own our mistakes, nor our successes.
I like his idea of a ceiling, an accurate way to describe the constant sycophance we have to deploy to do what we want despite it being maybe out of the box we were expected to stay in until the great leader discovers another larger box was surrounding it. Wont stop us trying to force its boundaries though, and it s a fallacy to think the common Chinese doesnt astutely perceive and navigate this to his best interest, less vocally than americans maybe.
> Nomura said the refusal to pay mortgages stems from the widespread practice in China of selling homes before they’re built. Funds from presales are kept in escrow accounts to use for construction. But confidence that projects will be completed has weakened as developers’ cash woes intensified.
> “Inappropriate usage of presale proceeds and the lack of adequate supervision of escrow accounts by local regulators and banks are likely associated with these mortgage suspension cases,” Zerlina Zeng, a senior analyst at CreditSights, wrote in a note.
Short (?) intro for those who don't know how it works in CN:
1. Local govts are in heavy debt and sell land to pay back their debt.
2. Real estate corps pay a hell lot of money (don't care where they get them) to purchase a land ownership (for 70 years max) from the govt.
3. Before construction even begins, the real estate corps start selling the houses to citizens.
4. Citizens pay up to 40% of the total price on their own, and ask the bank to lend them the rest of the 60% and get it paid back in the NEXT 30 YEARS (often paying as much as twice as the original price).
5. The bank gives 60% directly to the real estate corp. So in fact the citizen IS OWING MONEY TO THE BANK, and not to the estate corp.
6. Often, the real estate corp uses this money to pay back previous loans, or use this money to purchase more land from the local govt. So current (future) constructions pretty much depends on whether this Ponzi scheme could continue.
7. With the money earned from selling the land, the local govt could pay back the loan and ask for more, in order to build more infrastructure so as to pull up estate prices, from which it can earn more by selling more land.
8. ...until no typical citizen will be able to afford it.
Why emphasize that? 30 year mortgages are common in the US. At current rates of 5.5%, the total paid in interest will be bigger than the original loan.
Of course, most US mortgages are taken out on housing units that actually exist.
I agree with you, and just wanted to add that saying one pays “more” in interest than the original loan value is implicitly ignoring the time value of money, in particular equating 2022 currency with 2052 currency.
That's a valid point, but it's not hugely relevant to the situation, as all loans come with interest payments and loans over 30 years at ~6% or whatever will accumulate a lot of interest. It's something to talk about, but another thing altogether.
The mechanics of this are a bit scary, I wonder how much real data there is on it.
Paradoxically, if it were the US, it would be so bad it may wipe out the nation.
But Xi has the Central Banks politicized fully ... he can make currency worth whatever he wants. He has to reallocate/rebalance without causing a revolution.
And if it does get bad, they may try to start a war as a distraction. That sounds extremely cynical but it's a real thing that happens.
> Of course, most US mortgages are taken out on housing units that actually exist.
Construction is usually financed by a construction loan, at a higher rate than a mortgage, and the builder is the borrower. But not always. Here are some US failures from the 2008 housing crash.[1]
China has an unusual problem - the Party really, really doesn't like elections. For anything. But China has buyable apartments, which work like condominiums. Some organization has to run the building and maintain the common areas. That led to the creation of homeowners' associations with elected officials. This got party officials upset, and now efforts are being made to make HOAs subordinate to the local Communist Party units.[2]
I don't know, I'd be willing to guess that the majority of developers in the US would love to be able to do this very kind of ponzi scheme as accepted and gov't approved business model
Huh? I'm talking about taking money from you as a "deposit" so that he can finish building my house or buying the property for another person altogether with gov't approval yet no oversight on how the money is spent
> Of course, most US mortgages are taken out on housing units that actually exist.
To add to that, taking a mortgage for a house that doesn't already exist is a very used practice outside of China, too, I know over here in Romania lots of people do it.
It's called credit for "casa la rosu", basically all you need to show to the bank is a contract between you and the developer and a "registration" thingie for the house in question with the local city-hall (again, even if the house doesn't already exist, in practice). It comes with a price discount (I haven't kept up, I think it's in the 20-30% range, maybe bigger) but, of course, it's all very risky (or at least that's my opinion). That hasn't stopped lots and lots of people from taking those type of mortgages.
I also bought a house recently in very early stages of construction (a year ago, now it is almost finished). In Czechia.
The difference is that the developer must be reputable and the price is actually paid in several tranches, as the construction passes defined milestones. The bank will require independent assessments of the state of construction before approving any partial payment.
But yeah, it is still risky. You need to contribute at least 20 per cent of your own funds as a downpayment, and the downpayment is paid first. I wouldn't dare do that with an unknown developer. I risked it with a corporation that has been in operation since 1998 and has a lot of references.
The other difference is that the vast majority of US mortgages are insured by FHA and so are actually fairly cheap. It’s probably the single biggest market distortion in the housing market.
+HPSquared For total value it's up to 80%, and when comparing to income you can borrow up to 50% of the (before tax) monthly income, for up to 30 years.
Preconstruction sells at 30% discount, people gamble with their life savings considering PRC housing prices to income, but flip side is also massive speculative profit if things work out.
But doesn't Japan also have some weird customs/rules around housing stock age? I remember reading that most things get torn down and rebuilt at 20(?) years max for {reasons}?
- there was a postwar housing shortage, so the housing quality that came up to meet that demand quickly was not good. even if the house is still maintained well (a later point), japan has seen meteoric rises with living standards over the past 100 years, so it probably isn't compatible with modern wants and needs
- Japanese earthquake codes were regularly revised until 1981 after lessons learned from disasters. buildings from before that time have a significantly higher rate of collapse during earthquakes, so buying one and keeping it is a bit of a gamble on your life
- because of the depreciation, there isn't a lot of incentive to maintain your house well to the point where it can last more than 30 years
of course, all these things might be less true now that Japan has stagnated since the '90s, so there are reports of more people accepting renovating a house they buy rather than tearing down.
That explains it! I hadn't thought about the systemic flywheel caused by real estate valuations. Where if depreciation is a market assumption, values depreciate, which impacts financing options. And people expect values to depreciate, so people don't maintain and renovate, which ultimately fulfills the depreciation prophecy.
- construction is really big business in Japan, and as a result has deep ties to politics and is a usual beneficiary of Japanese stimulus programs (of which there have been many, since Japan has tried and failed at spending its way out of deflation)
- NIMBYism on buildings is much lower than in the US or Europe, due to the expectation that they are temporary
- because of the lack of NIMBYism, Japanese architects get a lot of leeway to build cutting edge projects, and so are very well represented in the world of star-chitecture
I think people are confused by the term (length of fixed rate) versus amortization (total time to pay off debt).
In Canada mortgages are typically 25 or 30 year amortization periods, but you can only fix the rate for 10 years (usually less as you get a much lower rate).
After the 5 years you renew your mortgage at the current interest rate with the same bank, or try and refinance entirely which requires the same paperwork as a new mortgage.
The US and I believe Netherlands are the rare countries where you can get fixed rate for the entire 30 year amortization period.
You are confusing a “30 year mortgage” with a “30 year mortgage”. They sound the same, because they have the same term to repay the principal, but they are completely different because in the USA you usually know your repayments for the next 30 years, but in many other countries the repayments can go up a lot if interest rates rise.
In the USA, the usual mortgage has a fixed interest rate for the term of the mortgage. In New Zealand the interest rate is approximately a floating (edit:variable) rate over the 30 year period.
In NZ the mortgage interest rate (which controls your repayments) can be fixed for up to 5 years (the median is 2) but after the “fixed” period the interest rate resets to the current interest rates (edit: typically mortgagees lock in a new 2 year “fixed” rate at the current 2 year interest rate). NZ rates were around 2% to 3% since 2008 [1], but now they are closer to 6% [2] and most mortgage holders in New Zealand will have to pay twice as much for the interest component of their mortgage repayment, putting some people under financial stress (an acquaintance is being forced to sell an investment property because they were over-leveraged). The mortgage interest rate over the 30 year term is more of a stepwise approximation to the floating interest rate: I am unsure how much control the mortgage holder has over varying the principal repayments (I think I can pay 20% more principal per payment, shortening 30 year term to 24 years).
It is more complicated than that, and the USA has a wide variety of mortgage products you can buy including ones similar to NZ (not just the usual USA fixed rate 30 year). Other countries have their own quirks, so I am only speaking for NZ where I understand the details better.
I expect the meaning taken by the average person in different countries varies, without much overlap. My point is that mortgage products are very different in different countries, and the average person is very unfamiliar with the differences. Perhaps you are technically correct (the best kind of correct!)
For example, in Australia and NZ a “fixed rate”[1] mortgage is not the same as what you have called a “fixed rate” mortgage. Australia looks like it offers up to 10 years at a fixed rate on a 30 year mortgage (ANZ? some banks like Westpac only offer 5 years?). Banks in NZ offer up to 5 years, even though they are mostly Ozzie banks. Ozzie banks typically offer something called offset mortgages - that word doesn’t get used in NZ at all AFAIK (instead NZers can apply for a seperate revolving mortgage, I haven’t seen it bundled like in Oz).
What you call “variable rate” is called “floating rate” in New Zealand (and search completion hinted maybe the same for Canada & Singapore).
It’s even weirder in the UK because you agree a mortgage did say 30 years on a “standard variable rate” but then take a mortgage for say 5 years on a fixed rate or discounted “variable rate” which might last for 2-5 years. People do usually take a new “mortgage” after each period.
It does look like a Ponzi. Aren't there any regulations to prevent that?
It's pretty similar to Korea until the step 3 but we have some safeguards after that.
Instead of giving money directly to the development corp, we give it to a trust corp. And the dev corps can only use the money to build the building.
And if the dev can not meet the due date and if it is delayed more than 3 months, the contract can be cancelled and the owners can get the money back.
That very rarely happens because dev corps desperately meet the deadline regardless of the quality. That causes hell lot of another issues but that's totally different story.
It seems to me like there are many things missing in the Chinese real estate system. Or is it just because no one cares the regulations?
There are regulations but badly designed (maybe intentionally). For an analogy to the Korean case, here the dev corps and trust corps and the government entities overseeing them are more often or not in collusion together.
The pyramid can keep growing while your population is increasing, but that is not the case in China, the fertility rate seems low and its population is shrinking [1].
>4. Citizens pay up to 40% of the total price on their own, and ask the bank to lend them the rest of the 60% and get it paid back in the NEXT 30 YEARS (often paying as much as twice as the original price).
So they're less leveraged than most American home purchases of 5~20% down payment. 30-year mortgages are also standard in the U.S. You emphasized "NEXT 30 YEARS". Do you think it should be longer or shorter?
>5. The bank gives 60% directly to the real estate corp. So in fact the citizen IS OWING MONEY TO THE BANK, and not to the estate corp.
That's how mortgages work. Why else would a bank be involved if the money is still owed to the seller? Do you think mortgages shouldn't be a thing, that people should save up 100% of the money then pay in full when purchasing a home?
>6. Often, the real estate corp uses this money to pay back previous loans, or use this money to purchase more land from the local govt. So current (future) constructions pretty much depends on whether this Ponzi scheme could continue.
You keep describing how this works in most places as if it's something outrageous.
>8. ...until no typical citizen will be able to afford it.
We're way ahead of China getting to this point here.
Well, there is evidence in China that the current system is super over-leveraged.
Evergrande and a few other developers have gone bust and left these pre-sold apartments unfinished. So now the people who bought real estate of any kind are getting spooked, and this is basically a bank run, but on real estate.
The Great Recession was bad, but all those houses existed. Which seems a bit better than this present failure scenario.
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As far as affordability, price to income ratio in Shenzhen is 36:1, as opposed to the highest house price to income ratio in the US being LA at 13:1. China is in an unaffordability class of its own.
> So they're less leveraged than most American home purchases of 5~20% down payment.
the american home is already built (mostly), for such a down-payment. The bank takes the home as collateral.
If it was an off-the-plan purchase (which is what the OP described), you don't really pay the full amount, but just a deposit (like 10-20%). The risk of the development falls solely onto the developers, not the buyer - the deposit is held in escrow, not used for funds to pay for construction or other developer activities.
> You keep describing how this works in most places as if it's something outrageous
that's because it is, when you compare it to western developments. The risk in real estate development in china lies solely on the buyer, and it's absolutely not the case in the west.
It is not typical in the western markets, but this kind of practice is fairly common in many markets. For example in India it works the same way, and most times the down payment is only 10%-20% or less. Generally the banks don't release parts of the money to you/developer unless certain milestones are complete. [1]
The practice of advancing money before construction completes, reduces the price for the buyer as already built properties sell for much higher than buying early. So buying early is way to buy a house when the prices are already out of reach for most. It can work if the project and financing is well regulated by the banks.
The property is cheaper[2] because these risks of delays, developer not finishing, not getting approvals so on exist and in theory is factored into the price, along with hedging future inevitable price increases.
[1] Indian real estate is by no means healthy and has its fair share of problems with these practices and delays, but not close to China's scale.
[2] In theory the risk is exactly matched by discounted price, but in practice seller will usually price it a bit higher than the value warranted by the risk factors. Also on average while it may work out, individual buyers may loose life savings as they are betting the farm literally when any specific purchase goes sour.
Three years ago I built a house to sell (I was general contractor) on a city lot my family owned. Before a single shovel of dirt was turned over, we had to pay around seventy thousand dollars for plan review, power connection, water, sewer and gas.
This really opened my eyes as to how much mitigation costs have risen over the years. I had built a house in the same area in 1989 and the initial costs were one tenth of that.
Seems a punitive tax on the entrepreneurial middle class. Such fixed costs might be insignificant for a palatial home. At the other end, large-scale developers know all about negotiating discounts and otherwise offloading costs.
There was a great article on this system, basically to build a house you need to have so much skill to navigate the maze of red tape, rules and regulations and so on.
That is true for every field, the skills required to do anything is increasingly specialized.
My grandfather became a pharmacist by simply apprenticing to one and then later owning a pharmacy. My mom had to only do a 3-year course, today it would be lot more difficult than that.
You can call it red-tap or code, we have learnt a lot over the last centuries, we put these regulations to protect the average consumer. Sometimes it is overkill, but most regulations have been payed for in blood. Aviation is very visible example.
> That is true for every field, the skills required to do anything is increasingly specialized.
I think OP's main point is that the majority of the regulated process is not necessary for his project. I would guess OP went through the whole process, and felt that the checks and examinations probably did not do much good to himself or the future home buyers. Thus the outrageous cost becomes an issue, because with the cost, the value is not justifiable.
As for pharmacist, I would totally agree that modern medicine is exponentially more complex than 30 years ago, and that's in a good way: the mechanism of how the medicine works are more advanced, variety increases exponentially, cost is down and more people are using more medicines.
Comparably, building a house has not been much different than what's in 1970s. Aside from newer materials in components, the house building is largely equivalent to what's in 1970s. I got this impression from my own house that is built in 1972, and watching the new building materials been used now on YouTube.
Lots of it is a tax on non-residents; because other tax forms are kept low but nobody "pays" for the permit costs, etc (it's wrapped in the cost of the house).
The US will often have guarantees on a construction loan, and sometimes the bank will even inspect the property as it is being built and only release funds when certain points are hit - 30% to start, 20% when foundation is poured, 20% on framing, 30% on completion. And then the loan will be refinanced to a traditional mortgage (construction loans are usually short-term and higher rate).
Many builders will therefor "self-finance" and sell the customer a "built home" direct into a normal mortgage.
Legislation states that the lease is automatically renewed (40yrs, 50yrs or 70yrs depending on how the land was purchased) for residential housing, but there have been rumours saying that related laws will change so the property will be taxed during renewal.
Considering that commercial housing started in PRC in the 1980s and the first batch of houses aren't technically expired yet, I think it's pretty hard to say what exactly will happen.
Wenzhou had 20-year land leases and originally planned to charge a third of the value as a renewal fee when the first ones began expiring in 2016, but ended up waiving the fee after protests. https://www.mingtiandi.com/real-estate/research-policy/china...
by deliberately leaving the regulation vague, the CCP is able to use this regulation as a form of control over the populous.
Come the 70 yr renewal, if there are citizenry who are attempting to disrupt the power structure of the CCP, they will be the first to lose their lease (or some other method such as a high tax which is equivalent to losing the lease).
Mark my words. Regulation that is not fully well specified, and enforced universally, is basically just a political weapon.
"Well specified" regulation is also a weapon. No law is fully unambiguous, clear and without conflicts with other laws for a specific situation, more well specified a regulation is, more you need professional expertise to decode, understand, implement and certify it.
To add on top, there are very few trustworthy investments available to citizens.
Real estate is one of the few assets that is quite secure when it comes to ownership.
Other Asian countries are similar. It’s why your average house in Saigon is more expensive than San Francisco despite a per capita GDP that is < 1/10th that of California.
Interesting. I wonder why the UK (which also has no ongoing property tax - just stamp duty) doesn't run into the debt problem. Perhaps, it's just that the country got rich during the period when the government was heavily involved in all that.
paying gov't workers (as well as any outstanding debt from previously), services and such.
from what i heard, the local gov't is only paid some 40% of their required budget from the central gov't, and they have to make up the short-fall themselves.
Makes you wonder where the banks are in all of this, and were is their due diligence. Seems the banks are making two critical errors that led to this whole mess:
* Giving out loans on properties that have yet to be built. In the event of default there is no underlying asset that the bank can use to recoup their investment.
* Improper controls on escrow. If you're handing out a loan for a property that has yet to be built, why would you not control escrow to make sure the money was spent appropriately.
My impression is that it seems everyone is just trying to make a quick buck over there, everyone is secretly jockeying to be a little bit better off themselves. But what happens when literally everyone in an industry is jockeying, eventually things will go off the rails.
It's a thing everywhere but the issue is that there's just so much of it in China. I live in the US and you can get custom home built, but that segment of the market is the minority, as most homes are built then sold.
The problem emerges when the majority of your homes are sold before they are built, therefore if any defaults emerge, there is nothing to collect on. The practice isn't the problem, it's the sheer scale of the practice that's the problem.
Not only defaults. Most of the developers are also over leveraged and so in cases like Evergrande even without defaulting on the part of the borrower, the units may never be finished.
In Romania it varies, but you get a better deal (small discount or get a parking spot, better orientation etc.) when you pay down 20-40% of the price before construction starts so many buyers go for it.
Waiting until the construction is finished usually means many units are sold (the good ones).
It also depends on the builder’s reputation of course, if it’s a big name they can charge more in advance.
IMO it sucks a bit for the buyer as delays are quite often and hard to attack in court.
It also attracts speculators who sign the pre-contract just to sell for a profit when the units are delivered.
I was one of those people that thought China would never collapse due to its iron grip on economy and population. But look at recent activities
* Chinese GDP shrinks to 0.4% in Q2 2022. Which is still suspicious because Shanghai economic activities declined -40%, and real estate overall activities dropped -30%
* Massive mortgage boycott. Also public protests against lost deposits and unable to access bank is being aired out in Chinese social media. Also property bond crash spreading
* The 1 billion people data leak has some experts analyzing the data and figuring that the Chinese population is already in decline, and only at 1.2B currently. Which means the population is going to half its size sooner than 2100
* Zero covid practice still going on, with tons of public discontent. There are videos of the people waiting in line to test in the pouring rain and huge wind!
* Zeihan gaining more popularity, which implies that people do believe that China is crashing. Foreign investors and companies are pulling out in record numbers
* public sector employees taking 30% salary cuts
Makes me think there will be a massive public unrest and Chinese government will likely collapse soon. What do people think?
Same story has been foretold over and over for the last 30 years.
I will believe it when I see it.
The RE bubble is bad but substantially less bad than what the US was facing in 2008. There is a big difference between over-leveraged developers (the Chinese problem) and rotten Main street banks (which was the US problem).
In China's case we are likely going to see a continued drop in housing prices for a little bit longer until they plateau. However they are unlikely to see growth again for a long time unless Chinese government changes tact. This isn't a bad thing as right now Chinese homes are some of the most unaffordable on the planet, especially in desirable cities. Also it will lead to speculation and investment moving outside of RE and into other vehicles like equities which will improve the breadth and quality of Chinese financial markets. The other bad things that will happen is construction companies will likely be in distress, large infrastructure projects/spending directed by the CCP will save the good ones but there will be a bunch of consolidation and downsizing. Not a particularly bad thing given the changing population dynamics probably requiring the construction of less housing than previously. Impact is unlikely to spread beyond RE because of how compartmentalized funding is in China. The government controls all the major banks and as a result they run under very low-risk capital regimes. It's much more likely the big financial fallout will be from foreign investors that were greedily holding onto risky Chinese commercial paper.
All-in-all I actually suspect this to go out with a whimper rather than a bang. The way systems are setup in China there just isn't really the potential for a bang outside of like big social issues causing a revolution or something but generally speaking that doesn't happen. Usually as dissent grows they recognize it won't go away and start doing something to appease the people. Recent example being their effort to deal with pollution in the major cities, etc.
So yeah. I get that Western folks, Americans in particular don't understand the Chinese system and wish ill will upon it but the reality is that it's a lot more robust than said folks give it credit so don't bet on it failing anytime soon.
Right so I had similar vein of thoughts years ago when I thought China was in a real estate bubble and did think that the government can just make certain type of investors take the loss and move on. However, that's only if the collapse is only in real estate. What I'm seeing right now with China is a death spiral, namely
bad policies such as zero covid, tech crackdown, or not resolving the root of real estate crisis -> investor (domestic and foreign) loss of confidence -> companies leaving or shut down -> rising unemployment or reduced salary -> debt bubble gets bigger -> bad policies.
This death spiral is enhanced by demographics collapse which is happening now, not 30 or 15 or 10 years ago, as well as nationalistic behaviors that isolates China. Not to mention global inflation and consumer demand collapse.
In my list of things I also didn't mention
* 20% unemployment rate for new grads
* layoffs from big tech companies
* 70% of China's economy is real estate related, which means China will take an even bigger impact from real estate collapse than other countries that have less % of economy in real estate.
* collapse in demand for real estate due to fast aging population
* 20% of built real estate stays empty (not even rented) due to investment vehicles purpose
How are over-leveraged developers that different from what caused the 2008 global financial crisis? The cause of the GFC was that assets were labeled as safe but were in fact unsafe. So one day everyone woke up and had less money than they thought they had. The same thing can happen from over-leveraged developers. Banks lend money to people to buy real-estate. Everyone expects those units to exist, and if they suddenly don't exist en-masse, then that's going to be a major shock.
It matters because of contagion. As it stands there are individuals at risk of being over-leveraged by having a loan on a asset that doesn't currently exist (but probably will, CCP has a way of compelling such things to happen) or has dropped in value compared to when they bought it (most likely). Developers and construction companies are also in hot water as their business models relied on continually pre-selling apartments to provide liquidity for their operations. This is where the similarities end vs 2008.
The main issue with 2008 wasn't the housing bubble itself, such bubbles are normal and happen all the time. The issue was the extent of the financial over-leveraging (due to deregulation) by the financial firms which threatened the solvency of Main st and Wall st banks alike and the incentives that came out of the synthetic financial products that were engineered over baskets of mortgages. Namely a reduction in qualification for sub-prime loans and increased incentives to offer variable rate mortgages with cliff clauses + continual refinancing + speculation + flipping etc.
Essentially normal people losing their house == expected (though sad still) and would have caused a moderate recession (again, expected). However because of how overleveraged the banks themselves were they collapsed, this spread (contagion) to pension funds, equities, everywhere essentially and because these assets and positions in the funds and banks were held across the world it resulted in the -global- financial crisis rather than a contained RE bubble popping.
Yeah, dude, the number of 'normal people losing their homes' will create a revolution, and/or, consumer spending will crash, combined with the fact that a 'major component of GDP has crashed' (i.e. construction), that's 'extremely bad'.
The US was able to 'rebalance' by propping up some banks - but in reality they saved 'consumers' by taking toxic loan assets of banks balance sheet and absorbing it onto the fed balance sheet.
CCP can't really do that for houses that are not built.
The other issue is the size of that part of the economy in relative terms.
This is is not going to 'blow over' - everything, including Xi's totalitarian takeover, increased control and repression, issue of age, diminishing marginal returns to growth ...
... this adds up to a 'major shift' in what China is. We saw a different China in the 1990s (quietly building), 2000's (onto the world stage), 2010 trying to be a global superpower, threatening Taiwan, occupying S. China Sea etc, and now 2020's 'reckoning /rebalancing'.
As I said, I will believe it when I see it. Heard the same doomsday stories over and over at this point.
The most likely way this plays out is CCP slowly nationalizes Evergrande and other embattled developers (bond holders and equity investors 100% screwed), sell the unfinished projects to developers that didn't run themselves into the ground for them to be completed. This is already happening.
As much as people want to believe there will be collapse I just see it as incredibly unlikely given both track record and the iron grip that CCP has over the Chinese state banks. Without a failure in the banking sector I just don't see significant enough contagion to cause long-term damage.
> taking toxic loan assets of banks balance sheet and absorbing it onto the fed balance sheet
This is not what happened. (The Fed never bought the toxic assets. It bought Treasuries and super-safe nontraditional assets off owners of toxic assets so they had the liquidity to resolve themselves. But the toxic stuff ended up in other places.)
> Central Banks give banks cash in return for garbage mortgages
There are zero mortgages on the Fed’s balance sheet. There has never been a mortgage on its balance sheet. If you think the Fed bought whole mortgages off banks for keepsies, or lost a single cent on its bailouts, you’ve missed something.
> Fed has almost 3 trillion of mortgages on its books
“Mortgage-backed obligations held by Federal Reserve Banks…guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae” [1]. Not mortgages. It’s a subtle difference. But a big one, given the top tranches of mortgage-backed securities never faced a solvency (versus a liquidity) problem.
There is literally 0 functional difference. Fannie Mae and Freddie Mac are government sponsored entities. They buy conforming mortgages from banks, package them up into a mortgage-backed securities, and then sell them on the open market. The Fed buys these. So your claim that the Fed doesn’t buy mortgages because “ackshually Fannie Mae buys the mortgage” doesn’t hold much water. And in fact, the only real reason Fannie Mae can guarantee mortgages is because ultimately the Fed can step in to buy any distressed assets.
The Fed is 'Governance'. It's just not democratic and didn't arrive into it's current situation the way we would have liked it.
It acts in essentially the same manner as 'Bank of England' or the 'ECB' just structured a bit differently.
The Fed's massive intervention in 2008 was similar to other Central Banks, because it's effectively the same thing i.e. 'governance'.
The Fed's intervention to 'buy mortgages' is not a 'market response' - it's a 'government response'.
The intervention was mostly related to buying mortgages (however they ares structured is secondary) and is de-facto a bailout of Home Owners, who, if they were subject to normal market conditions, would have faced massive foreclosures, and, would have destroyed home prices for everyone else, furthering the calamity.
That the mortgages on the Fed's Balance sheet were not 'the worst' of the assets is a bit of a side show - in 'current market terms' they were all toxic we know that because nobody wanted to buy them, which is why the Fed had to do a 'non market intervention'.
If they were not basically 'garbage' at the time, the Fed would not have had to intervene to buy them.
As a result, the Fed hold's a giant pile of 'mortgages'.
This comment is a good example of why popularly-controlled central banks fail within a generation. The lack of understanding is understandable. The insistence on doubling down on it is not.
In the way Sudafed is meth. Agency MBS’s never faced solvency questions. Unrated mortgage-backed securities and whole mortgages did. You are argued the Fed bought toxic crap off banks. It didn’t. It bought the cream of the crop, giving banks liquidity with which to address the rest.
The difference between mortgages and agency MBSs is entry-level finance. You don’t need to know it. But you should understand your circles of competence well enough to know not to debate it.
> CCP can't really do that for houses that are not built.
Assuming there was political will, there's no reason the CCP couldn't do that for houses not yet built. By definition toxic debt is larger than whatever the collateral is.
This doesn't answer the question. China also sells mortgage backed securities and has parts of its financial sector operating with little regulation. Something like 40% of outstanding Chinese loans are tied up in shadow banking activities. It's entirely possible that a failure to pay mortgages leads to contagion, especially because the mortgages aren't even backed by anything in many cases. In some ways, we're already seeing contagion. A lot of these developers are folding due to new regulations on how much debt developers can take on.
It does answer the question you just want to look past it. Chinese state-owned commercial banks (SCOBs) account for ~40% of the market alone, another 40% or so is rural banks etc, all of which are under incredibly strict regulation. You can't compare the state of US banking in 2008 to what we currently see in China, they aren't even remotely close in terms of regulation, capital requirements and auditing. Current day US banks probably have less stringent stress tests than SBOCs.
Shadow banking and privatized loans are definitely a risk but they don't represent the same scale of risk as we saw in 2008. It's almost certain they explode but I don't think it's possible that such a small portion of the market can markedly affect the financial stability of the nation as a whole.
Aren’t those the banks that were taken over by gangs and has their funds embezzled? You’re painting way too rosy a picture of the Chinese financial system. It’s taken months to make rural depositors while after having their money stolen. They’re still waiting.
~300/4400 banks represening ~1% (I think 500B USD worth) of total PRC banking assets fell within the high risk category according to PBOC audit last year. Which included the rural banks running the high interest scam by gangs hence the April crack down. For reference the 24 major banks hold 70% of assets. Interestingly these stats were released in PBOC Q1 press briefing in mid April that seems to coincide with hammer falling on these banks. It's a hit on small rural bank reputation, but it's not catastrophic. Shouldn't be surprise it will take months to untangle mess and determine whether / who should be compensated by national bank insurance scheme for non-compliant transactions from obvious scam (10% interest). So far they've settled to compensate clients with 50k rmb or less on Monday to spare small time dummies who got scammed. Questionable if larger depositers will, or should be compensated.
Nothing significant no. Ping An had some exposure but it's already written down - they are also not a bank, they are an insurrance firm but worth mentioning as they were the highest profile entity with exposure.
That doesn't mean zero of course, they are still taking a haircut on whatever assets they do hold but at a % of assets it's not significant, also they are likely to get preferential treatment when it comes to servicing debt as domestic bond holders.
Because of their horrendous credit ratings developers actually had a huge amount of trouble sourcing capital locally and were forced to sell junk bonds on the international market at elevated yields. This means a few things, firstly that everyone acknowledged the risks (hence the high yield) but also that the impact of the RE market slowdown is devastating on these over-leveraged developers because of their very high cost of debt.
The fact that the assets were always junk rated is partially why this is way less of a big problem than people are trying to make it out to be. In 2008 the problem was the assets were AAA rated (the exact opposite of junk) and thus were held in enormous quantities by large banks and funds all around the world. Conversely because of the risk these assets posed they are held rather narrowly in comparison and those that do hold them knew and were sophisticated enough to accept the risks.
> How are over-leveraged developers that different from what caused the 2008 global financial crisis? The cause of the GFC was that assets were labeled as safe but were in fact unsafe.
US (and Western Europe) loans backed by residential real estate were considered "safe" by the world. Loans in China that outside parties need to work backchannels to be allowed to get into will never be considered that safe.
China is at risk of following Japan into stagnation. It is especially likely given the massive wave of manufacturing repatriation going on now. If China loses its position as the world's manufacturer, it will have to rely on its untested military strength to obtain resources to appease its restless population. Interesting times indeed.
> China loses its position as the world's manufacturer
they will not because the reason japan (and the US) lost theirs is that china was cheap.
Where are you going to get this type of labour - skilled but cheap - other than china, in the next 10-30 years? Southeastern asian countries could make up some of the amount, but if they could do it today, they would've dominated already!
The repatriation of manufacturing is political propaganda - it won't work economically, as consumers' preferences is overwhelmingly for cheap goods, not expensive patriotism.
There's no indication that the manufacturing capacity could be taken over by a south-eastern asian country. If they could do so, why is it not done today, rather than in the future (when china loses their manufacturing capacity)?
Changes take time, and there are massive opportunity costs to moving your supply chain base elsewhere. If other countries can do manufacturing equally well (same quality, cost, legal environment, etc), but you already have your base fully established in China serving your entire global operations, moving to the another country gives you no benefits, and you face the risk of severe disruptions to your operations if anything goes wrong.
So the world will only move out of China if other countries like India can offer significantly lower cost at same quality, which they haven't been able to do, or if there are significant geopolitical risks to staying, which seems likelier by the day.
I don’t think companies are going to fully leave the Chinese market or anything. That wouldn’t make any sense. But divest their exposure and locate factories all around the world because of the risk due to concentration? Yea definitely.
> incurring the wraths of normal folks in Europe and other allied countries.
We have our own issues here in Europe with incurring wrath on Russia, thank you, we can't take two at a time. Or at least I hope we won't f.ing take two at a time, the gas prices being what they are is bad enough.
> The 1 billion people data leak has some experts analyzing the data ...
Link please?
> Chinese firms are still selling Russia good its military needs
What do you expect? China does not sanction Russia. And USA is hard pushing China in all China's surrounding areas: Taiwan, South China Sea, Xinjiang, South East Asian... Punching a cow and you'll be paled.
> incurring the wraiths of normal folks in Europe and other allied countries.
"Wraiths"? Can we first see the wraith be unleashed onto the Russian troops in Ukraine, which supposes to incur even more "wraiths"...
> Zero covid practice still going on, with tons of public discontent. There are videos of the people waiting in line to test in the pouring rain and huge wind!
You can measure how anger the US public is towards their covid policy, vs Chinese public's reaction. ANY public policy is going to err some people, especially in a country with close to 5 times the population of USA.
> * Zeihan gaining more popularity, which implies that people do believe that China is crashing. Foreign investors and companies are pulling out in record numbers
Who/what is Zeihan?
> * public sector employees taking 30% salary cuts
They can’t block GitHub because a lot of chinese tech firms depend on it. That is something very hard to develop locally because the entire world can contribute
They try to really degrade GitHub though to encourage non-GitHub use and probably weaning off of it. clones, pulls, etc. are very slow and unreliable and it's definitely not due to the size or reliability of the pipes.
> the Catalan independence movement went full in on treason
There's a few hundred million mainlanders, and the entire leadership of the CCP who feel the same way about Hong Kong. Perhaps Madrid and Beijing should compare notes?
I support the Catalan movement as I believe in all people’s right to self determination but that is fundamentally different.
Catalonia does not have a legal right to just break free from Spain. It would also be difficult for any country if the richest region could break free at will.
On the other hand Hong Kong has a legal right for local rules for at least 50 years after the handover in 1997. That treaty was broken last year.
So legally Spain is in the right and China is wrong.
Legality is meaningless when there was no meeting of minds when the law was drafted. Catalonia's current situation was created by an authoritarian, fascist government. The law in question was drafted without the consent of the governed, and is thus illegitimate, if it does not have ongoing consent of its constituents.
But more importantly it is a joke to compare the situation in Catalonia with that of Hong Kong. It’s not like we see trains full of people on the way to torture in concentration camps leaving Barcelona.
> Catalonia's current situation was created by an authoritarian, fascist government
No, significantly more authority was devolved to the region from the democratic governments following Franco. However there was no point in history where Catalonia breaking away was an explicitly allowed option (of course).
and current situation in HK has what you are saying should be a requirement for a law (let alone an act of force ) : the "without the consent of the governed," you are citing..
Protesting is within the legal framework of the country. In France, i have the right to protest under certain conditions (organisers have to receive an authorisation from the police on the route the protest will take, things have to be kept civil, e.g. no running around burning cars). I do not not have the right to start an independence movement and/or rebellion in Brittany.
So it's not the perspective, it's the legality of goals and methods. For instance in Russia, you can't protest the war in Ukraine, so going on the streets about it isn't "just protesting", one is willingly breaking the law for the cause.
Off-topic, but their “pretty” design is surely an anti-pattern for attracting developers. (Then I looked at https://github.com/ and it has an inane graphical world that looks like a designer’s folio project too!)
Gitee also put the site language choice in the footer - odd choice. Plus some UI bugs on the page. Yuck.
I'm not sure the choice in the footer is that odd here. It appears as another code collaboration service to me and I assume it defaults to Chinese in China. I would likely not realise it's a project under Chinese protection if it wasn't mentioned here in context.
Maybe we get a different version for some reason, but the only indication I get is oschina.cn in the footer. Not a Chinese character on the whole page.
The use of "They" seems inappropriate here, which is belittling the entrepreneurs' ambition. The culture of code sharing in China is indeed different from US. So I bet gitee has a lot of features tailored to that market.
If you're just trying to get the content, sure. If you want your citizens to be able to earn $ by working remotely for other companies around the world, this won't work.
Obviously GitHub is essential an essential tool for modern day programers, and the CCP only needs to give the access to a version of that tool under the control of the CCP.
That's the sad thing about Github. It takes something that is decentralized and puts in the hands of a company that is closely associated to the American security apparatus. I agree that China shouldn't trust it, given the current situation.
I first heard this story from sources that were not so friendly to China, so I didn't put a lot of credence into the sources, but now its coming from bloomberg.
I hope the people ultimately get the houses they paid for. What a terrible thing it would be to put 20-40% down for a home and to never have it delivered. I would assume there is going to be some sort of bailout?
The problem’s fairly serious. As I understand it, real estate is really the only form of investment open to the Chinese people, and often, the property is bought and sold under the ‘greater fool theory’: no one actually lives in these buildings. Many don’t have working utilities. It is, (or was) an appreciating asset, handed from one to another until you can actually buy a livable place, or just make a ton of money off of, or Use it to buy foreign property, ie something more real.
So when building stopped altogether, due to government crackdown of developer loans, there aren’t any new entrants, and no greater fool to buy the worthless property, a lot of wealth might disappear in China.
It’s like US 2008, but much worse. Or perhaps US 2023… who knows?
Possibly. Although the pains the government takes to separate its people from the West, hard to predict how exactly it’ll effect elsewhere, if there’s a Chinese crash.
When Chinese firms cannot get financing for manufacturing at all or cheap enough, because Chinese banks are hemorrhaging money from real estate, it will create problems for everyone.
CCP and the People's bank of China are not setting monetary policy in a vacuum, the Chinese currency operates within a managed floating exchange and has been internationalizing for last decade, that constraints the actions PBC can take without crashing the currency or the systems they have been building up to make CNY the(a) international reserve currency.
> I first heard this story from sources that were not so friendly to China, so I didn't put a lot of credence into the sources, but now its coming from bloomberg.
You should reexamine your assumptions about these sources. Sounds like they deserve credit for reporting it earlier.
sorry, I should have said earlier, but I didnt want to get in a rabbit hole. I pay attention to lots of sources, to see what they say, and sometimes they can end up in the penalty box. This particular source makes a lot of grandiose claims that I cannot verify, so trust--. I don't completely discount them but my baysean trust for them was lower.
> Have faith in the party and the government. The party and the government will definitely give the people a satisfactory explanation, here is only for statistics, do not have excessive remarks!
They have to remove the risk of being labeled anti-party or dissidents. They do this by appealing to the ideology, at least superficially.
Of course, this is a double edge play. Notice how the message boils down to “the party is right! It’s probably the fault of some dark, greedy figure(s) somewhere!”. But by absolving the government from ever being wrong you remove the possibility of them ever improving and fixing themselves. So someone(s) get sent to jail, others are demoted, and everything is swept unde the rug, but the structural problems remain and will appear again and again.
All problems in China are due to reactionary elements that are trying to overthrow the Party!
And since the Party represents all Chinese, these elements are clearly attacking the Chinese people themselves so the only solution is to rally around the Party and help it solve the problem!
The protesting citizens do this as a plea for help from the national government. They know that the true believers in the national government need to be kowtowed to.
It is a risk to your life to protest the national government, but the national government allows protest to local governments as a means to reduce steam buildup.
This results in over the top worship of Mao during local government protests as a hedge, because it creates a potential photo op where the local government is tearing down praise to Mao.
>The protesting citizens do this as a plea for help from the national government. They know that the true believers in the national government need to be kowtowed to.
Could the plea for help from the national government be sincere? My understanding is that in early Soviet history, many people were sure that if Lenin/Stalin knew about the awful things local commissars were doing, the great leader would surely order such acts to stop.
Obviously by the Brezhnev/Andropov years very, very few people would be so gullible as to believe such, and I suppose that it's awfully late in the history of the PRC and CCP to expect otherwise of the Chinese, but the thought at least came to mind.
Another way to interpret this would be a (much, much more serious) counterpart, in the US and the West, during the past half decade of the de facto necessity in most parts of online discourse of prefixing anything that is not left of center-adherent with "I hate Trump, but".
Mao is an icon of mass initiated political movement.
You thus saw Mao and Maoism get badmouthed universally nowadays. And you wonder why that's the case...
The US mortgage delinquency rate was 2.13% in Q1 2022
( https://fred.stlouisfed.org/series/DRSFRMACBS ). It was 4% in 2016, 3% in 2018. Why should an observer/investor be worried that "Non-performing loans [...] could reach as much as [...] 1.4% of the outstanding mortgage balance"?
The situation is a bit different. It's common in China to pay for unfinished apartments. So the bank has nothing to foreclose on, and the property development company becomes even less likely to finish the property. The fear is that more people will protest by stopping payment in a downward spiral.
Your numbers don't measure the same thing. Non-performing is a subset of delinquent, meaning likely to end in foreclosure. If you don't pay your mortgage, you go to delinquent and then a few months later to non-performing.
It need not be a collective boycott... It can be individual people making individual decisions to not pay the mortgage because they believe that paying is a waste of money. Ie. why pay monthly for a house which will never be completed? You're just pouring money away!
If you don't pay, the property will be taken off you, and probably valued at a high valuation (because the property developer wouldn't want to have their unbuilt properties selling for cents on the dollar). That means you probably will escape bankruptcy or any further debt.
> If you don't pay, the property will be taken off you, and probably valued at a high valuation
which would contradict the assumptions that lead to the decision not to pay.
Therefore, i suspect that the (half-completed) property would indeed be worthless (even to the bank), and is not a suitable form of collateral to recover any debt from. It might be the case where the bank eats the loss - or those who stopped paying the mortgage would be forced to pay (unlikely if this is a widespread issue as it causes social unrest).
My prediction is that the state owned banks would eat the loss, and wait out the confidence crisis - which might take 10 yrs - but then real estate will resume as before as a form of investment (and the cycle begins again).
Pretty common situation that happens in a lot of countries. If the market is OK the developer takes deposit and the apartments and sells them to someone else. If the no one wants to buy the developer goes bankrupt and people who bought lose everything they've paid so far - bank forecloses on the apt which isn't worth much if anything.
It's happening right now in Australia, big builders are going bust leaving homes half finished or not built. Input costs have risen so much on fixed price contracts that there's really no other recourse for them.
Buying off-plan is common worldwide despite what others are saying in here.
People who boycott mortgages get their properties confiscated by court eventually, and if any developments suffer issues government should aid developers to ensure any paid customers get their property done.
But the boycotts are rational, because even the Chinese government thinks that the developers are overextended and may fail. They seem to be taking the most careful, benign option.
Chinese government should offer hard guarantees that all properties would eventually be completed, and at the same time that bad lenders may lose theirs.
In Russia it's quite common occurrence that a very late project by a failed developer is eventually completed and the lenders get their apartments at last, after regional government intervention.
In China it should be even simpler as the money never leave the escrow account. I wonder if there are un-escrow provisions if developer fails to deliver - in theory there should be no risk at all.
The Chinese gov't can have that (at some level) without doing a giant rescue of everyone. If they want it to keep growing, sure they can do that, but the problem is they let it keep growing too much already.
Ah, well i’m not sure their idea of ‘resolved’ meets any definitely of safety for the parties involved. They also don’t seem like the type that has the same definition of duty you’re likely implying.
It’ll be interesting to see what happens, that is for sure!
boycotting a mortgage on a secured loan with 40% down is a political statement, not economically rational. The numbers are probably minuscule and the “boycott erase story” is itself mostly political.
I think the main point was that these are not secured loans. The developers operate in a ponzi like fashion, so there is nothing to foreclose on and no cash to claw back by the bank.
I’m not sure how big of a problem that really is, but I could see it toppling a number of local banks.
Construction companies in the USA (and the west typically) don't get paid up front 100% for the full amount, but is often paid "pro-rata" based on milestones or % completed.
The funds a released by an escrow (which the purchaser and the bank, if it's a mortgage, would choose).
The situation described in china is not like that above - the developers got paid 100% of the cost of the build upfront, by the purchaser. The bank loans the funds to the purchaser for this purpose (at 60% LVR for example).
The bank has the title as collateral - but since the property isn't built, there's no property to sell if it goes bad. It's just the land title. The reason the banks do this is because it's a politically driven mandate - the CCP in the past, wanted more construction, and this is one way to drive risk away from developers (so there'd be more developers!).
It's perfectly economically rational if your equity is less than zero, which can happen when you put 50% down. It just means your valuation of the asset dropped in half.
We saw the same thing happen in Korea and Japan after their post war construction, they moved up the ladder, worked hard, but then when they got a taste of real success there was a huge amount of speculation.
In the late 1980's Japanese real estate was the most valuable in the world, then it collapsed and they have not recovered.
This is a big secular shift for China. All of the previous projections were wrong, just like those indicating Japan would take over the world in the 1980's.
This is where China comes out of 'catch up' mode, and is now finding it's 'reality equilibrium' with the rest of the world.
> is now finding it's 'reality equilibrium' with the rest of the world.
the one big difference with all the previous examples is that China is authoritarian, where as the others were all (at least on paper) democratic.
China _could_ mandate the population to perform actions that the other tiger economies couldn't. I would be hesitant to assume that historical economic performance of japan and korea would give much indication to what future economic performance would be in china.
You should read about the political history of South Korea before making the claim that Korea was democractic (yes you hedged with "on paper" but that is meaningless).
I think someone is downvote stalking me, because I write things about their beloved USA they don't like.
But I'll write this: whenever I read about China and censorship I just can't forget how the EU and UK are censoring Russian media.
So when you're in a glasshouse don't throw stones.
Always the hypocritical "look China bad us good". I'm so tired of the propaganda - an EU resident.
Before you start judging a person for being dirty, make sure you're not dirty yourself.
That is because you mistake Russian media for free and truth seeking media. You probably missed the closing down of many news agencies in the past years (that have seen a growing repression from Putin), and perhaps you missed the exodus of journalists and shutdown of the last independent media from Russia.
The only thing you can get is the propaganda from the Kremlin. That propaganda is the crucial part of the Russian warfare. It functions to sow doubt about the truth. It is instrumental to get people to believe that Ukraine downed MH17. If Russia commits war crimes, its media start to spout different explanations, often mutually exclusive ones. Lies, damned lies, stupid lies, but it takes a lot of effort to deconstruct even the most plainly stupid ones of them. The effect is that you see a variety of nonsense, which makes you think about it as it sows confusion. This is known as the Firehose of Falsehoods. You are not sure anymore, some of your friends might buy one of the lies, while another one might stick better with you because it fits your beliefs better. This has nothing to do with understanding the truth.
You cannot compare our free press to the russian media.
I am very critical about our media, also because they seem to be ignorant about the dynamics of our media which the Kremlin perfectly knows to exploit.
One of the pitfalls we have been observing is the one of False Balance, where you present the statements of one side as is, although it is complete garbage. Deconstructing false statements takes time, knowledge and a deep understanding of the context of events.
Now look at the financial incentives and you see why we have got a huge problem in our western societies that rely on commercial entities to provide our news.
The bad news is: Firehose of Falsehoods is extremely effective! Look at Trump and his relationships with truth. He gives a new meaning to it.
Now you might think you are smart and special, so propaganda has no effect on you. Just like everyone else thinks.
It is a poison, there is no reason to drink it.
Censoring the media of a state that literally is in a proxy war with you and essentially has been since Putin came to power, although the west didn’t realize what was happening until recently, seems reasonable.
If someone was stealing and breaking stuff every time they came over to your house, you wouldn’t let them in anymore either.
Utter unrestricted access to all from everywhere is a odd notion. Is it also somehow hypocritical to censor isis propaganda?
I know there are enormous profits to be made in China, but I wonder if American investors ever think to themselves ... by investing in this place I am strengthening a regime that ultimately is the enemy of my values.
China is not at all incompatible with those values. And even if it were, that wouldn't be an issue - business interests on the whole have consistently been a strong ally of fascism and authoritarianism.
I call bullshit on statements like this. You think corporations would love authoritarianism until the corporations realize that one day someone who is really close to the head authoritarian could just demand 10% of their corporation and there is nothing they can do about it. They would also realize there is a whole class of people that can do whatever they want, when ever they want, to whomever they want (As long as the other person was not above them) and there is nothing to be done about it.
Corporations, while it might pain them on some level, want to exist in a free, open and democratic sociality since it gives them access to courts and people in power. In Authoritarian systems, people at the top, just take whatever they want and there is nothing to be done about it.
Also, a foreign corporation is never going to have access to the higher levels of the Authoritarian government because they are foreign. Places like China don't care about foreign corporations because at the end of the day, there is nothing they can do to help the head authoritarian.
Why? It keeps order, it keeps the proles from getting uppity, and it's not much in the business of wealth redistribution (unlike it's liberal democracy counterparts on the other side of the world).
Likewise, business as a whole in the US (and elsewhere) has no issue supporting the more authoritarian and repressive of the two political parties. They prefer it, in fact, because of what it does for them in limiting worker and consumer rights. When you're in the upper class of society, most of the repressive rules don't personally apply to you.
> Likewise, business as a whole in the US (and elsewhere) has no issue supporting the more authoritarian and repressive of the two political parties.
This is potentially the start of a boring partisan flame war. Let's not do that.
The Republican and Democratic parties both have some platforms that strike outsiders as authoritarian and repressive. But debating them on HN doesn't work well IME.
I deliberately didn't name names (because in this context, it doesn't matter which is more authoritarian than the other, the statement works regardless of which side of that question you take.) My point is that business interests have no issues with authoritarianism, so long as it doesn't get in their way.
If you're waiting for the S&P500 to optimize for freedom and democracy, and justice, and reasonably-priced love, you're going to be in for a very, very long wait. It actively optimizes for the comfort of its executives and shareholder value first and second, and for the rest of society not at all.
And yet Chinese citizens of all walks of life have been immigrating to my humble neck of the woods for the past decade (and they're welcome to, everyone I've met is super nice and grateful to be here) while I've heard of 0 people moving from my locale to China, I wonder why that is.
China is compatible with democracy, a free market, and rule of law?
Yeah, I think there's a reason the best and brightest in China often try to immigrate to the USA, Canada, Australia, etc. Its not for the food, believe me.
Sounds like the government caused this boycott by trying to rein in the exact activity that the boycotts are protesting. If they're censoring it, it's probably because they're trying to soften the effect on overextended banks. If the government hadn't insisted on functioning in the first place, the mortgage holders would still be in ignorant bliss.
If China could afford to damage these banks (or if the people who run them fail to have the right connections and attitude), it seems like it would actually benefit the government to publicize these boycotts as further support for the crackdown.
In the US, we'd just call the papers and get them to all run stories about a new trend among right-wing conspiracy theorists to stop paying their mortgages, relate them somehow to tax protesters and sovereign citizens, call them freeloaders, and insist that the figures being spread around about the number of people involved are probably from covert Russian sources.
edit: I mean, after that we'd start censoring, demonetizing, think-tank fact-checking and downranking, but only after accusing everyone involved of being a terrorist.
