Comments by "Grak70" (@Grak70) on "Business Basics" channel.

@raymondmaglaris4149 future construction is being used by Chinese banks as collateral/underwriting for loans they’ve made to construction companies. If the construction companies building those properties don’t deliver on them because of labor shortages, material costs, corruption, etc, confidence that future ones will be built declines, meaning they have to drop the price to get people to buy them (often times units in China are sold far before they are built, meaning people are paying mortgages on properties that don’t even exist yet). Lack of confidence in completion is why many buyers are refusing to pay their loans. This rebellion against the loan industry also eroded consumer confidence, driving prices down even further. If that spiral gets so bad everyone decides the projects will never be built, the bank has to admit they have no collateral for the loan they made. If the construction company goes bankrupt and defaults on its loans because it couldn’t turn a profit on its now worthless housing units, the bank is now insolvent. The government then has to decide whether or not to intervene to stop the damage and prop up the failed businesses and banks. If they do, they can avoid the cascade of defaults that could break the banking system. But this also encourages risky lending because a precedent is set that the state will save you.
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@doubledouble4g379 at least a future capital asset is being promised in this case. NFTs are literally “yeah we wrote your name in an encrypted book next to a hyperlink.” 😆
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@matthewhanacek8771 it will probably be a little better than the subprime mortgage bust in 2007-2009 because China’s financial system is not as integrated with the rest of the developed world as the US is. Also China has tons of balance sheet assets available to convert to cash if it decides to bail out its banking system. But a lot of those are foreign sovereign bonds, so it’s not like it will be completely isolated. Any time anyone sets trillions of dollars on fire, things don’t tend to go well. The CCP is already cracking down on asset swaps like this and making borrowing harder, but it has to balance that with expectations of continued ridiculous growth. A failure to do so will start to throw doubt on Xi and Party direction all together. If there’s one thing China hates, it’s instability. But it’s pretty much inevitable that someone (or many hundreds of millions of Chinese someones) is going to get screwed hard no matter what the Party decides to do.
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