The Liquidation of China's Evergrande is a WARNING to All.

what the heck is going on with China's

everg Grand one of the largest and most

indebted real estate developers in the

entire world and what does it mean for

China's $0

trillion economy and quite frankly our

economy well first to catch you up real

estate wealth building in China has

always been very important to not only

the Chinese Communist party but also

people in China in fact 78% of household

net worth comes from Real Estate in

China in fact the Chinese property

Market is expected to make up over 25%

of the Chinese economy both of those

figures about twice the figure that we

have in the United States so real

estate's very important in China even

despite the fact that private land

ownership isn't even allowed instead

real estate purchasers usually accept

70-year leases but what's remarkable is

that while China encouraged the taking

on of of debt via developers essentially

financing their operations with more

debt than they have cash or like assets

China decided you know what we're going

to Institute three red lines China's

three red line policy was really

interesting because really China had

been encouraging developers to say hey

you got $100 in your pocket here why

don't you borrow $50 in other words they

were borrowing more than the assets or

Equity they actually had china then

decided to u-turn on that in August of

2020 and what

happened well the developers that were

way upside down on debt could no longer

borrow new money to continue financing

their operations which meant certain

real estate projects weren't getting

completed when those projects weren't

getting completed buyers weren't paying

for the projects duhh cuz the projects

aren't done and the Ponzi started to

unravel well that doesn't bode too well

for the Chinese economy and so of course

Chinese real estate is now down about

37% in just 2021 and 2022 combined not

great but what about evergrand ah yes so

within about a year of the changing of

the three red lines policy evergren

failed to make payments on hundreds of

billions of dollars in debt dollar

denominated debt those losses exceeded

$66 billion in 2021 and 14 billion in

2022 and so they basically said hey can

we renegotiate and we'll file for

bankruptcy and we'll

renegotiate and those renegotiations or

negotiations have been going on quite

frankly for the last 19 months it's

gotten so bad that the founder of

evergrand was arrested well now what

happened and the news that was breaking

in the last 24 hours here is that a

court in Hong Kong has decided you know

what these negotiations have gone on for

too long we are going to authorize a

company called Alvarez and Marcel to

liquidate ever's assets these assets

could include the office building that

they bought in

2015 for $1.6 billion the problem though

this is just Hong Kong see the majority

of evergrand assets are not actually in

Hong Kong they are in mainland China so

the impact fact of this Hong Kong ruling

isn't actually as substantial as it

seems like it may be we see headlines of

everr in liquidation uh-oh that sounds

really scary but it gets actually scary

when that liquidation is accepted by

mainland China which we're not sure if

it will be however it may be and if it

is then we're probably going to see

additional property collapses in China

trust in developers has already been

shattered this could affect consumption

in China for an entire generation

affecting I mean we already know

population growth is starting to Trend

negative in China but the reality is

people's net worth has now been

substantially hamstrung and future

investment into real estate and Trust in

the real in the Chinese economy may be

significantly

restrained given this sort of rugging by

the Chinese Communist party with limited

effect from their policy support for

propping Real Estate back up now we did

have slight upticks in real estate sales

in Beijing and shangh high in January

but most of China is expected to

continue to see Sharp real estate sales

declines and Bloomberg intelligence

thinks we need to see Supply come a lot

further down before we actually balance

supply and demand in other words Supply

doesn't come down prices just keep

coming down a liquidation of evergrand

assets in in mainland China could just

exacerbate these issues now the free

market would say sucks forever grant let

them fail they took on too much debt the

rules changed sucks for them they hold

the bag buy T take the properties

basically that's what liquidation is

take the properties dump them for

pennies on the dollar and let the market

solve the problem that is the capitalist

approach but it's also one that could

lead to a lot more pain in China now why

would we care why would we care in

America I mean we could speculate on

China by maybe investing in a stock like

Alibaba which trades for say a onepeg

but that's only as good as the

expectations for growth are if the

expectations for growth are wrong

because the Chinese consumer is

destroyed then maybe you don't want to

speculate on Baba or the Chinese

technology uh you know ETF web maybe you

don't want to speculate on those things

on the flip side there's the potential

that hey maybe uh liquidation will be

orderly and it's good to get other

people people owning these evergrand

assets and get rid of that company and

start over but if evergrand ends up

dragging China into recession it is

entirely possible if not entirely likely

that the entire global economy will fall

into recession after all Germany's

already in recession China goes into

recession because of this collapsing

property Market frankly I think it

probably already is but an official

recession you know they're still

officially growing at 5% you know as

much as we can believe that uh but

yes it is possible that pain in China

could Shell Shock the rest of the world

so pay attention to this liquidation in

Hong Kong is the Hong Kong liquidation

as big of a deal not really what we

really want to know is if mainland China

will adopt the Hong Kong liquidation and

then everr will finally be fully dumped

anyway thanks for watching we'll see you

in the next one goodbye why not

advertise these things that you told us

here I I feel like nobody else knows

about this we'll we'll try a little

advertising and see how it goes

congratulations man you have done so

much people love you people look up to

you Kevin P there financial analyst and

YouTuber meet Kevin always great to get

your

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