this post was submitted on 04 Nov 2024
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Economy
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I don't think China's economy is broken, I think it's working, more or less, as intended. We have to remember, China is not a free market economy, they are a state directed market economy. They are a hybrid of a centrally planned economy and a market economy. I know many people think these two things are mutually exclusive, but apparently you can have elements of both in the same economy.
I don't know why China over-built in housing by so much. Maybe they anticipated the population would grow more than it has, or maybe they never intended for these properties to be occupied. Maybe they built these properties to spur some growth and create jobs, and didn't really care if they were ever occupied or not.
I'm sure these projects were funded by loans from China's state banking system. They lend the money to builders, the builders use the money to build a bunch of buildings, which creates jobs and economic activity, then the builders can't sell the buildings, so they can't repay the loans, so the state run bank has to charge off the loans, but maybe that was planned from the beginning. That would mean the Chinese state banks would have a lot of write-offs, and that's true, but they're not private, for-profit banks. They're part of the state, and the state prints its own money. The Chinese government can seemingly create an infinite amount of money, so they can seemingly lose an infinite amount of money.
There's no question this is incredibly wasteful, and bad for the environment, but if your goal is economic growth above all else, this strategy does seem to work.
Unfortunately, the reason why these were built, and who funded them are different from your assumptions.
They were funded by private Chinese individuals as a way of investing. Because of the way that the Chinese economy works, there are not analogous investment opportunities as to the states. Since these are funded by private citizens, they are the ones that will lose their investment if the units aren't filled. If it was the state taking the loss, I would agree with you that it wouldn't matter.
I see. Well, I still wonder how much of an impact that will have on the broader Chinese economy.
If the investors are unable to sell these units, they will have an essentially worthless asset on their balance sheet, and the money they invested will have basically been flushed down the toilet, but, while that sucks for them, I don't think that will necessarily have systemic impacts. Unless, of course, these assets have associated bank liabilities, but, again, the banking system is all run by the state. If these investors default on any loans they have against these assets, the assets will be seized by a state bank and the loans will be charged off by a state bank.
You're pretty much correct, except the investors will also likely be criminally charged if they did secure loans for these buildings, or if their losses with empty houses affect the ones they did sell; i.e. if the property management company for occupied building A has to shut down due to liability from unoccupied building b.
In China you don't really get to harm the public economically and get away with it or get rewarded for it, unlike the US where you have to harm rich people to get any consequences.