Comments by "Samson Soturian" (@samsonsoturian6013) on "Evergrande - China's Lehman Moment?" video.

  1. Who said building had anything to do with population growth? 1. In Communist China, the state owns the land and leases it to people for decades, collecting lots of taxes and fees that are about 40% of the cost of a house. 2. Officials are promoted, demoted, jailed, given bonuses, or allocated state resources based on GDP numbers. Officials are constantly coming up with new schemes as they're constantly being compared to their peers. 3. Construction and housing are among the few fully private industries. State enterprises can straight up ignore anti-trust laws, which drives away competition. This means competition is fierce within construction and profit margins rarely exceed 10%. 4. Crony capitalism is tolerated where officials give contracts to business they own shares in or are owned by family. Many major bribery busts have occurred, and in the cases we know of it appears officials received at least hundreds of bribes over a period of years before being caught. 5. Escrows are not required. Paying builders with money from presales is the norm, and of course that insane amount of leverage causes waste. 6. Speed is prioritized above all else. Construction begins with mostly prefabricated parts before blueprints are ready or feasibility studies done (you can forget about soil compaction and inspections). 7. Most new constructs demolish existing structures. Many of which collapse before being used. And so the endless racketeering goes on. None of these guys actually care if the construction collapses immediately upon being sold as that is on the buyer. Many people live in shelters made from their half finished houses as the builder went broke and they can't afford both rent and their mortgage.
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  2. There's a major real estate bankruptcy in China every day (literally). No one in China if one of the bigger one happens this month.
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  3. Escrows are not required in China. This lets real estate leverage to the tits by paying builders with the cash from presales. Predictable insanity results...
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  4.  @the11382  often no one buys. There are entire ghost cities populated by a few squatters. Other buildings drop their prices dirt cheap in the struggle to find renters. Other buildings in places where there's real demand are oversubscribed with presales. I recall one case where a judge required state funded builders to give compensation to landowners they forced to sell. So speculators bought up land ahead of the developers and built bear bones multi-leveled gazebos so they'd collect state compensation. The developers built a ghost city that was never used and was so shoddy you could crumble the cement with your hands. See? When corruption is involved you don't even need to sell. Although one real estate manager said he'd seen projects spend as much as 30% of their budget on bribes. This puts them in a scenario where they can either default on bank loans/payroll (and close up shop) or cheapen construction by skipping quality steps and actively diluting building materials.
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  5. "[Real estate] is responsible for 29% of economic output," That China's fraudulent GDP data talking. Local officials get bonuses, demotions, promotions, and state resources based totally on GDP numbers. Thus they will start lots of big "tofu dreg" projects that are overrepresented in GDP numbers, generally part of a crony capitalism scheme. For these schemes it matters little what utility comes from the buildings, as a collapsed or unsold or abandoned half finished building means the schemes can start all over again.
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  6.  @antonystringfellow5152  yes, but paved roads are the mark of a developed country. And China works very hard to look like a developed country even while having living standards closely akin to Mexico. Ergo you get narrow local highways built paper thin that turn to rubble in a few years, while a handful of decent but overcrowded roads have heavy tolls and predatory fines which is how the road is paid for. One YouTube who lived in China said on local highways you'll find mostly motorcycles and semis as the former aren't allowed on toll roads and the latter can't afford to keep paying all those fees (I.E. a 5 ton weight limit on a 4 ton truck, plus cops get a cut of every ticket issued).
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