Protests In China: The Story Behind the Bank Scandals

[@PBoyle]

Thanks to our growing list of Patreon Sponsors and Channel Members for supporting the channel. www.patreon.com/PatrickBoyleOnFinance : Marc De Mesel, Nate Stapleton,Timothy Baird, WIlam, Hernan Merino, Random Encounter, Nieuwsbrief Ikwil, Bee Positive Consulting, hyunjung Kim, John Cadena, Ian Tracey, Callum McLean, Oscar, Simon Pena, Ed, Pavle Obradovic, Erik Van Ekelenburg, David O'Connor, Pjotr Bekkering, Alex, Robert W Proudfoot, Robert Muller, Andre Michel, Ivan Iliev, Gopaljee Atulya, Mark Hooker, Artem Vasenin, P H, Sebastian, Michal Lacko, Peter Bočan, Michael Pierce, V Jordan, Gil, HalfwitHam, Mark Brophy, Patrick T, David Urdenata, Juan Valdez, Bruce Roberts, Chad Norman, Bruce Roberts, Shamikh Rana, Friday Guy, Marc De Mesel, Augusto Ramos, Soy Boomer Doomer, Bob Slartabartfast, Robert Feiler, Camil Dbouk, Erik Montesinos, Matthew Loos, Az Indragiri, Aman Bali, Lautaro Parada, Pratap, Deborah Joseph, Robin Sung, Kurt Johnston, Dominik Auerbach, Gurmeet Kaushal, John Hall, Dara Mo, Josef Goergen, Wilbert Cheng, Daniel Talero, Jaroslav Tupý, Trevor Lucey JB Weld, Alex, Carlos Figuera, Peter Pomelov, Null065, Rick Thor, MeBerzerk, Henry Nguyen, Sola F, The Collier, Carlos Mejia, J Wadia, Bitcoin OG, easy boekhouding, Albert, Eugene Jung, Daniel Cervini, Jonathon Yong, Iris Ji, Emil Nicolaie Perhinschi, Charles, Eli Auto, Excks, Michael Li, Par Hedman, Praveen Mishra, Gerard Scott, joel köykkä, Areeb Ahmed, David Wang, Yazan Qaraqish, Rodolfo Cornetti, Daniel Winroth, johnny, Nick Jerrat, Chris Houston, Alastair Currie, Robert Griffin, Andrei, zizi Golo, Fab Vida, Constantin Petrenco, pawel irisik, NotAScam, James Halliday, 22 Dust, Carsten Baukrowitz, Heinrich, Arron T, Ben Brown, Stephen Mortimer (to The Moon), Ryan B. 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[@MrKyledane]

Thanks Patrick, I've been hearing these stories leak out and was hoping to get some perspective and reality-check and you definitely provided that. I like that this didn't come along with some doomsday "collapse" theories which permeate KZbin, but which don't take into account how the Chinese system works.

[@secretbassrigs]

thank's for not ignoring the updates

[@afwaller]

This is a fantastic video Patrick, thank you

[@secretbassrigs]

@@MrKyledane how does the Chinese system work? The same system that created and is now exacerbating the financial crises? Paying mortgages for non existent property has never been sustainable.

[@secretbassrigs]

Patrick, I really want to know your opinion on how an invasion of Taiwan now could affect the current financial crises staggering China's economy.

[@gilbertfranklin1537]

It is unbelievably refreshing to watch a video presented by someone who can actually summarize information that we have been seeing for quite a while, but still feel confused about. Mr Boyle has clarified these problems better than anyone else on KZbin. So, I simply had to subscribe and plan to check out his other posts. Thank you so much for the presentation style, content, and quality! Good work! 👍🏆

[@maestrovso]

This is the most balanced and objective presentation of the causes and impacts of the banking and housing problems that has plagued China in recent time.

[@dondrumpf5422]

I agree!!

[@lecoqjeannot3358]

Having lived 8 years in Hong Kong, I can confirm this analysis is perfectly spot on and correct.

[@rogergeyer9851]

Calm, rational, and focusing on facts, as usual. Well done as always, Patrick.

[@snakehandler1487]

I miss the Rap-related content

[@paduraruovidiu201]

The "Stonk Guy" under the plant, under the books. Love it!

[@kingofapex9493]

I'm from Shanghai, China, a very objective report, nothing more nothing less. Good job.

[@MrWoowootila]

What was not mentioned is property prices in a lot of Chinese cities are at a extremely high average price/ average local annual salary of 40. To put that in perspective some of the most expensive cities in the world are around 10-15. The Chinese government allowed this bubble to grow at historic ratios. Even if the property halved in value it still would be more expensive than New York. More stimulus is the wrong approach. Deflating the bubble is the only logical choice. How the Chinese government does this is the question. On one side owning property is not achievable for the average Chinese, but the possibility of social unrest of the people losing half the value of their property is the other choice. As a side note, a lot of the property is leased for 75 years with some stipulations on extending or passing it on to family members. I have lived in China and some of the apartment buildings are so poorly constructed and maintained that a lot of them are falling apart at only 5 years. These properties will not be around when the 75 year lease expires. Greed and corruption in the housing sector is going to haunt China for years and possibly decades.

[@dnomyarnostaw]

Scary thought, to be living in a house with such serious structural issues. That's a political landmine waiting for the future

[@ivancho5854]

As the Chinese population is forecast to halve by 2050, the longevity of the housing stock is probably not a big issue for the country.

[@FalkonNightsdale]

Also there is no mention, that those unfinished buildings are usually "double collaterals" - they were used both as collaterals (in the form of finished flat) by homebuyers AND as collaterals by developers (in the form of partially constructed asset).

[@AndyWallWasWeak]

still not as bad as Japan’s 1989 bubble, right (would be interesting to compare property valuations to income)? otherwise, impact both at home and globally can be quite severe. at least here it’s mostly one overvalued sector, not e.g. whole stock market as was back then in Tokyo

[@ivancho5854]

@@AndyWallWasWeak I have heard that the Chinese property bubble and their debt bubbles (personal, central and local government, although the latter is estimated as it's all off balance sheet as it is illegal in China for local governments to have any debt whatsoever!) are the largest in history. However every metric can be manipulated. I do believe that the contagion will be of incredible proportions if (or is that when?) it all blows up. The world economy is far too interconnected and indebted to be robust enough to weather another crash well. Time will tell.

[@christiankreps5920]

These analyses are so impeccable I now routinely click "like" before the video even starts!

[@dudet9662]

"Sometimes the law defends plunder and participates in it. Sometimes the law places the whole apparatus of judges, police, prisons, and gendarmes at the service of the plunderers, and treats the victim -- when he defends himself -- as a criminal." - Frederic Bastiat.

[@DismasBeats]

This is one of my favorite channels on KZbin, keep up the good work mr. Patrick Boyle

[@droldsw31]

Patrick is one of my favorites too and he is always impeccably dressed in his extremely tidy office. But if he had hair, it would be fun to mess it up during one of his videos.

[@messiah1295]

frfr

[@jayclips8684]

hope he keeps his format just as!!

[@j3i2i2yl7]

"Developers who acted responsibly... were soon dwarfed by their more aggressive competitors..." This speaks directly to the need for government moderation of a market economy, but China is supposed to be a controlled market economy, so how could they wait so long before addressing the growing bubble?

[@marrs1013]

Politicians rarely, if ever do anything that does not benefit them. In any country, not just China. Some countries however slightly better exposing them then others. Not much, though...

[@Meitti]

Some of the CCP representatives were directly benefitting from the housing bubble financially, so there was no hurry to deflate the bubble. CCP was actually aware of the Housing market bubbles as early as 2015 when it tried to push laws where married couples were limited to a small number of owned houses. But Chinese citizens quickly found a loophole by simply having fake divorces. Corruption is mostly in control of every aspect of chinese society.

[@newyorkcityabductschild]

Simple the chineese government could not afford to stop it

[@johnwong5317]

Heard some reports of Local Government starting to give out massive fines on small businesses over small violation. Seem they are trying to get squeeze money out of people anyway, anywhere they could find.

[@eccentricthinker142]

Sounds like NYC and LA.

[@SiameseCheese]

Sometimes government is just another business.

[@levansegnaro4637]

Naw government is the ultimate mob, extorting all the money they can

[@xiphoid2011]

I heard due this years low growth, government is pushing banks are lend out more money, but borrowers don't wan to take on more debt in this economy. So banks are "lending" big loans to each other at the same interest rate to meet the government's lending quotas.

[@andywong9847]

All human systems will fail eventually, be it democracy, communism, capitalism, Marxism or market economy. Even so, come, Lord Jesus.

[@katrinweigel3796]

What I still don’t understand is the immense amount of huge apartment houses complexes all over China which have been finished but all empty since year. No one ever moved in. there are 1000 and thousand of them. No one in China could really explaine what is going on there.

[@TheNasaDude]

If you build at random locations just to show you can complete some buildings and go on with the next round of funding, maybe the owners intend to rent and nobody goes there because... Random location

[@gtw4546]

I've been watching this situation for the past year, since the 3 red lines policy was announced, and you've explained it REALLY well!

[@Mark_Kiwi]

Just love it when we get a Patrick video. Makes my day.

[@sophrapsune]

The political imperative is that, wherever possible, the losses will be shifted to foreign investors. Where that can’t be done, the party will continue to scapegoat “local” officials & executives.

[@dznuts123]

Another virtue signaling, eh? How about you talk about the alternative? China’s re bubble was already huge. If CCP didn’t deflate it, when they still had control, the real collapse would be much much worse.

[@sophrapsune]

@@dznuts123 1. You obviously don’t know what “virtue signaling” means. 2. In the most extreme totalitarian state in human history, the CCP’s policies of the past two decades created this bubble. They are not the far-sighted heroes of this story.

[@dznuts123]

@@sophrapsune China is not the most extreme totalitarian state. You can stop trying to sound superior, when you have no first-hand experience, other than western propaganda. And no, I didn't claim they are the heroes. I merely stated that they chose the better path, instead of letting the bubble pop naturally, the latter of which would result in more damage.

[@dondrumpf5422]

@@dznuts123 well-said

[@dondrumpf5422]

It's not about blaming and scapegoating. Local governments in China have authorities, and not all doing well. The central government is expected by the people to act and fix the problems, if the local governments cannot deliver!!

[@dasandbox2555]

Excellent Analysis and summary. You nailed it out of all the info I’ve read this was clear concise and totally understood.😊

[@lauranyc4966]

I know this is a bad news but why am I feeling so relaxed when I listen to your voice and the way you speak 🙂

[@MikiCab1]

There is a lot of corruption and kickbacks in those land sales. I worked for a computer chip company that had an office in China and our local Director stole $1.5M before the company figured out what was going on. Basically he got kickbacks for everything expense like office supplies, rent, furniture, etc. From talking to other Chinese that is the way they do business. One person I knew working for another computer chip company got promoted and he was excited about the kickbacks he would be able to get. He flat out told me this is how we do business in China.

[@SiameseCheese]

It sounds like an entire culture of corruption.

[@MikiCab1]

@@SiameseCheese From my experience it is corrupt to the core. Everyone has an angle. I once took a taxi cab to a store and the taxi cab driver came in and told the store owner "I brought them here and you have to pay me a percentage of what he buys" The store owner and taxi cab driver argued and he left without any money and the store owner told me what went on. Stuff like this constantly went on. We had an expiator to get our equipment in from customs and I suspect they were paying bribes.

[@SiameseCheese]

@@MikiCab1 Kickbacks and the use of facilitators are common throughout the developing world. I just don’t see the PRC as still being a developing economy.

[@PEzell-cp1lt]

Quality material presented with extraordinary speaking skills, music to my ears. Thanks!

[@debasishraychawdhuri]

For a long time people on KZbin were arguing that everyone says China has a bubble, but it never bursts; so may be it was different and that it would never burst. Every bubble bursts, that's just a law of nature.

[@onlyplaysveigar7241]

It's technically possible to deflate the bubble if they know exactly what money has to go where and to what as the precise time since they are an authoritarian government and force the parties to obey their every command. Unless there are complex political implications to the actions. But on paper it is a possibility.

[@xiphoid2011]

Well, until recently the general Chinese population thought that the housing market has become so big and important that the government would never let it fall, aka "too big to fail". This is also one of the reason the Chinese government was unsuccessful at trying to cool the marker before now.

[@JohnSmith-um7iy]

@@xiphoid2011 the Chinese government likes to surprise everyone once in a while

[@SpenserLi]

Tbh they will just let inflation run wild. This happened in the 80s and 90s and 00s but because the culture in China most people will just think they didn’t work hard enough to catch up rather than they are tanking the losses.

[@EUGENIUS60]

Impressive presentation, as it is so rare to find information about China unbiased by sheer ignorance. The complexity of the issues being usually well beyond the average.

[@ddegn]

China Update has daily videos about China. I think it's another channel which does a good job.

[@aenorist2431]

Way more detail than Patric here, which makes sense as he's just giving an overview to people unfamiliar with the catastrophe.

[@johntaylor2683]

@@ddegn As does Lei's Real Talk.

[@ddegn]

@@johntaylor2683 I completely agree.

[@jacintochua6885]

It suits your fantasy no doubt. Keep dreaming.

[@crwmdp9]

Great explanation! Also great tie today!

[@tuams]

Please keep us informed about this topic. I learned something new!

[@DESERTCB1]

Patrick's analysis is excellent!

[@slightlyfavored4528]

There is a similiar practice in Russia. I bought my own apartment near Moscow while the house was being built. There was fraud in the past, but then goverment imposed heavy regulations. All agreements between buyers are developers are registered by the goverment and there are strict capital requirments for the developer to make sure they would either finish construction or be able to return money in full amount. And it goes without saying that it's better to choose a company with some Putin's friends in managment. Then its collapse is highly unlikely.

[@johnwilkinson3880]

Nice tie. Good to see standards are being upheld!

[@xiphoid2011]

We are Chinese immigrants from Shanghai. My father invest $300k (all his liquidity at the time) in Shanghai 2001 and it had turned into a million just 4 years later. As with the US housing prices at that time, he sensed a property bubble in Shanghai too (median housing prices was something like 50x the median income) so he sold in 2006. Well, both housing markets were bubbles, he just didn't know at the time the Chinese one was going to grow for another 15 years. He passed away 2 years ago. I wish he could see that he was right all along. Dad, thank you for leaving so much to mom and having taught me well.

[@pickstars7886]

我认为今天世界的诸多问题早在08年那场金融危机就已埋下祸根，贫富日益不均需要重新分配

[@prw56]

People have been predicting the collapse of the chinese real estate market for (I think) over 20 years at this point, can't blame anyone for getting out early.

[@iamsheep]

Selling it in 2006 was just stupid.

[@Kemet3.0]

@@prw56 The reason why it lasted so long... because China is a 5 times bigger market than the US so it took 2 decades to happen. This is why a lot of smart Chinese got their money out and ran to Toronto, the US, Vancouver, the UK, Australia, and now Singapore, etc. They knew this was coming... now China's steel market is crashing.

[@huas5350]

@@Kemet3.0 China has been collapsing every day for the past two decades 😙

[@kubakiller]

Excellent sum up, ive been waiting for this. Cant wait to see where all this will end, the corruption is palpatable..

[@joshuahernandez3216]

You do a great job, my friend. Keep up the good work. Love from the USA. I use to live in China.

[@marcingaladyk]

What is worth mentioning is that selling of the land was the main taxation system of CCP.

[@StephenGillie]

"Selling" - it's a long-term lease, and most of these leases don't even involve any dirt, just part of a building.

[@gabe22400]

Selling land is the main revenue for the local government. Taxation is the main system of the CCP. The local government collect the tax and send most of it to the CCP, the amount that is left was never able to meet the quota of the CCP's GDP expansion plans given to the local governments, there fore they have aggressively sell land at an increasing price in order to get the funds they need.

[@rkan2]

Yeah, Patrick mentioned this in his earlier videos. A Ponzi everywhere...

[@jonathantaylor6926]

@@StephenGillie Meh. In the USA you "own" the property, but pay property taxes. 2% a year is pretty typical in the USA. So that means every 50 years you are giving the local government the entire value of your home.. in china, its every 70 years. Id take a 70 year lease over 2% a year, that's cheaper.

[@jeebusk]

13:05, "peaches watermelon and garlic" definitely quotable :)

[@phillm156]

As a fellow Bostonian alumni, I like to say Well Done!

[@Deez-Master]

Thanks for the always high quality content

[@PBoyle]

Glad you enjoy it!

[@dondrumpf5422]

Good and insightful content!!

[@dondrumpf5422]

So sorry, whoever respond to my post, please repost it. YT hides your post

[@raideurng2508]

And me sitting here, having paid for my property in the US in full from hard earned cash. How weird.

[@jip230]

Thank you for being the voice of sanity in explaining this situation in China Patrick!

[@shikyokira3065]

15:40 "most of the solutions being put forth for the problems in the Chinese financial system don't actually solve any problems" I have been saying this for few weeks when people thought the Chinese central bank lowering its interest rate can fix the housing crisis. While the crisis is triggered at the financial level, the catalyst, also the core problem, is actually at the fundamental level, namely the rental and home building. Changing interest rate won't fix the fundamental issues they are facing

[@ClintRusbridge]

Excellent thanks

[@immanuelaj]

Finally. I was getting annoyed by all the sensationalist videos that kept appearing on KZbin on this topic. It was good to hear a reasonable prediction of what would happen in the future.

[@peterbenko9395]

good one, keep up the good work!

[@normantan23]

Wow, spot on! Your analysis is by far more in-depth than Bloomberg. I did a bit of digging after reading some Bloomberg reports on the Rural bank run and mortgage boycotts. But I think you have offered more than what I found out. Good job!👍

[@robertbaldwin5771]

U missed the main problem with rural chinese bank debt. They issued bonds in USD and are getting hammered by Yuan depreciation.

[@babeen94]

This is very informational. Espceially, was surprised to know one can only lease houses but not own one in China.

[@CanonLuke]

Property developers "lease" land from the government to build houses, and people buy houses with 70 years' residence rights from property developers To some extent, "one can only lease houses but not own one in China" is also OK

[@andydowell3332]

Thanks for the video Patrick!

[@kynamd]

Thanks for your presentation. I have only 1 question. 11:12 Where's this party at??

[@roegoleg]

There are parallels to the 2008 financial crisis. Both governing bodies saw what was happening and did nothing until it collapsed. Then they step in and provide liquidity, oversight, stability and most importantly time for the perpetrators to financially get back on their feet. It’s today’s bastardized version of capitalism, whether it exists in the east or west.

[@chewskewsme]

Great analysis - so many chickens coming home to roost. The herd mentality around moves to particular types of investments is massive in China so just as it can make a market soar, so it can have the opposite effect when a trickle out turns into a raging torrent. The CCP is also dealing with an increasingly knowledgeable population so outright aggression/suppression is no longer an option for their own sustainability. I only hope that the issue stays local, which is probably unrealistic.

[@ffletch5277]

Patrick nailed it, as usual. I used to live and work in Beijing in the early 2000s and saw the very beginnings of this. Chinese in those days (maybe still) hated bank loans and families would pool together their money as much as possible in order to minimize the exposure to the fickle banking system and even more, avoid interest payments. Buying a condo in those days was a guaranteed no lose investment and a clear outward sign of wealth. If you could do it, you did or you lost face in your neighborhood. At that time, with so few home owners, and so many people, no one then imagined then that it would be possible to overbuild. No way…But that’s exactly what happened. Coming from USA, it was shocking to me the amount of cash a family were able to scape together as well as the trust they all had of one another that the money would be properly used. It’s very often quite literally 5-6 peoples entire life savings pooled to buy a single unit. There are so many Chinese competing with each other in a pool of so few so few opportunities it causes a frenzy and very aggressive actions that you very rarely see in USA.

[@ivancho5854]

The Eastern concept of Losing Face is something that I'm glad is absent in my life.

[@TheNinj47]

@@AlexKim-zg1cx the scale and intensity of this concept isnt really comparable to china though

[@johnelst7517]

Great info Patrick wish you were able to do more videos because your coverage or thorough research is the best

[@CrookedSkew]

Why would I ever pay a mortgage on a property that doesn't exist? Madness, sheer madness. I can't say the government is particularly responsible when it comes to good decisions or regulation. "A failure to pay mortgages would result in serious long term consequences" in the above case? Let the companies go under for greed and the government suffer for stupidity.

[@sanjaybhatikar]

You would pay because your country is run by a mafia called CCP and they will send people to knock on your door and break your knees if you don't.

[@seekittycat]

Because it's a bit cheaper, the ones that do exist is already bought or is too expensive.

[@maryhadda8420]

Chinese people have no good place to stash their savings.

[@ImperiumLibertas]

Nearly the entire local government economy relies on these large developers purchasing land. If those developers go bust so do the local governments. They'll never let the developers go bust, they'd rather shift the debt to the federal government or whatever the equivalent is in China.

[@stevestewart63]

Because they had to get a mortgage to pay for the deposit and the stage payments as happens in any country!!

[@williamlouie569]

I remembered Chinese housing bubble was on horizon for the past ten years. So it is finally happening!

[@jacintochua6885]

Boy o boy, what fascinating fables. Very imaginative.

[@AndyWallWasWeak]

i’m rather surprised by steady rise in global property markets. it’s such a strange asset, heavily dependent on worker mobility, demographics. it cannot be exported or even moved, government or local authorities can always raise taxes or impose obligatory costs such as renovation or some sanitary practices, and leave owner of no choice but to incur losses. renting or selling always comes with fees, paperwork or other procedural burden, taking time and stress. maintenance is unavoidable and only gets worse over time. worst thing, it’s like majority of people don’t know what to do with their money and just have to buy homes, so your fellow investors are often a bad company, amplifying market craziness, and banks are happy to make a fee on 10x leverage and resell mortgages to e.g. pension funds or other not very discriminatory buyers. childfree living and traveling can push e.g. airbnb to really disrupt renting/ownership

[@JustinPugsley]

Love the tie!

[@littlebitmckee8234]

I have been following this… I have to say this is an excellent summary

[@timocallaghan4408]

Thank you for addressing things in a rational and unbiased manner.. a lost art!

[@TheMrFishnDucks]

Very interesting video. Keep up the good work.

[@roadtested9009]

To replace lost revenue from land leases, local governments may turn to taxing those who were victimized by the property collapse. It will be interesting to see if outward bound migration away from Chinese cities increases.

[@ieuanhunt552]

Wait there is migration away from cities I thought the "logic" behind those gigantic ghost cities was that China is urbanising and rural folk are moving to the cities in droves.

[@secretbassrigs]

bank to country life, third world living will be called government funded homesteading in China. Like North Korea 😜

[@alhollywood6486]

Outward to where?

[@SrCoxas]

People love to say that China will do some crazy shit, but most likely the federal government will stablish new means of renevew for the local governments and move the burden elsewhere. There's no point for Beijing or the CCP itself to keep local governments bankrupt and not helping/disturbing the country's economic plans.

[@roadtested9009]

@@alhollywood6486 To rural areas.

[@Longtack55]

Hello and thanks Patrick for this excellent presentation. Any consideration to translating the protest banners, just to give me a feel for the mood?

[@theWebmasterify]

FYI, „small cities“ in China most often still have a few hundred thousand inhabitants

[@rkan2]

More like million if calling them cities :D Villages are the ones with a few tens of thousands to a hundred thousand or two lol

[@marksherrill9337]

A friend lives in China and made me aware of the issue. I think you did a better job explaining the details.

[@tyn6211]

Imagine that. The wealth of one person is usually the debt of another...

[@leanderkorber8701]

Very interesting academically oriented video, presenting Chinas financial state.

[@animusadvertere3371]

If you wanted to design a system that will eventually fail suddenly and massively, this would be a good design.

[@JohnSmith-um7iy]

They’ve allowed capitalism to run free. Now they’re going to burst the bubble. I doubt it would affect them that much.

[@benjamintaheny450]

Charles Ponzi wishes he had these guys as students.

[@secretbassrigs]

the term, "Lay Flat", is becoming mainstream in China.

[@tuckt6180]

Awesome insight !

[@BrianBetron]

Thank you for your hard work on producing these videos

[@oferfriedman5821]

Thanks you for your wisdem and vision🤴🙏🙏

[@StefanRosander]

As always, excellent video.

[@MasonGelosotech]

that tie is sharp

[@haaamey]

Dont worry about the relatively short term of the residential leases. The buildings will fall apart before the lease runs out.

[@StephenGillie]

Having watched this play out across other KZbin channels, I'm not convinced that these are connected. Instead, I see the first banking issue as basically a non-crypto rug pull. Better returns than average were announced, just like so many crypto products, but crypto is illegal in China. So they had bank employees lie instead of lying during a livestream. Saying that "the customers should have seen the higher rate and assumed higher risk" which you earlier suggested could just be incentivized by a desire to diversify the rural bank's customer base. Second, the housing bubble is because the Chinese housing market is basically a Ponzi scheme. Only in China could a Ponzi scheme involve more than 1 billion people.

[@AicyDC]

Not at all a ponzi scheme. Firstly people buying homes aren't encouraged to get their friends and family to buy homes as part of the "scheme". Secondly, land and homes have real intrinsic value. It's a bubble - that's a very accurate word for it, no need to misuse terms.

[@ccbill2852]

great sharing, thanks

[@thomas6502]

Thank you Patrick. Also, I love your tie sir! (Curious if it is a specific family tartan--or just beautiful to the aspiring Scot in me.)

[@missopowers]

Appears to be a clan MacGregor. Perhaps of Balquhidder, but not sure on my monitor. The MacGregors developed a bad reputation and some fled to Ireland. Maybe some relatives from the past?

[@dnomyarnostaw]

This is a very thorough, very logical and well researched analysis. much appreciated.

[@pankajmadhursharma8135]

we in india think our banking regulator in last 25yrs has been conservative and good.. would love to hear your opinion..

[@np2819]

Under construction home buying is also very common in India.

[@aaronmurray3293]

Awesome summary of one of the most fascinating financial crises developing right now. I think the one nuance you missed is that the act of trading agricultural goods for houses was actually an attempt by property developers to circumvent price floors which have been implemented by local governments. New home prices are actually flat according to official statistics despite sales being down by 50-90% for some developers. This is because local governments have actually dictated that developers cannot drop their prices for homes. The offer to trade an apartment for garlic inflated the value of the garlic, which is a very inefficient way to drop prices. My 2c is that the economy has been doing the equivalent of mining crypto by building unusable apartments to trade. This also seems like a huge waste of resources so happy to see it coming to an end.

[@dondrumpf5422]

Financial crises?? Like in 2008 LB crash?? Not really!! Chinese will keep holding their properties as they don't have much alternative to invest, and they have more than enough saving. It's all demand and supply. If the China's government doesnot provide adequate supply on housing when the demand is high, the price will be even much higher!! Now, the demand seems to be cool down. China's government needs to find other ways to grow the economy, by stimulating household consumptions. Hopefully, after the CPC Congress in October, the lockdowns will be loosened, and economic activities will be booming, including travelling, partying, etc, etc. So, let's see!!

[@openureyes]

Excellent information

[@nickstewart7708]

Another great video - thanks 🙏 Cool tie - Scotland the Brave

[@rajakegelapan8498]

Thank for sharing, great explanations.

[@dylanl2258]

Good info.

[@AndyWallWasWeak]

how significant is risk of spillover to global property markets? any chance mortgage slowdown in U.S. can be related (suspicious timing)? is problem sufficiently isolated both by China’s controls and ring-fencing in developed economies?

[@gregorymartin2697]

Well said, thank you.

[@MineCartable]

I most expect China to try to push the costs of these off onto their currency. Since they've practically got the Yuan pegged to the USD within a margin they can afford to print off more to keep the economy rolling. Whether they leave it at eating the losses to their actual purchasing power, or try to find a way to force the excess currency onto foreign investors or debt trapped countries is a different question. The middle class will be crushed with falling purchasing power, and the alternative will further dig its grave in with regards to the international community. Though since China has a history of ignoring both of these consequences in favor of solving the issue, and they might even try to justify it from the perspective of internal circulation or making the Yuan an international reserve currency. It's also very possible that all of these economic tricks have been used to their full effect, in which case the only way to go is down with the softest landing being to just eat the hit to their purchasing power.

[@AicyDC]

Making your currency drop in value is a sure-fire way for it to not become a reserve currency, no?

[@MineCartable]

@@AicyDC It would be more like a way to mask the reality. Similar to the way Sri Lanka claimed that it wanted to be an all organic farming country. The goal wouldn't be to push for their currency to become a true and proper reserve, in my opinion. It would be more like trying to make someone else the bag holder of their mistakes, and if they can manage to gain some soft power out of it then it would be a win.

[@patrickvanraes2092]

@@MineCartable I wonder how China could possibly mask the reality to foreign investors. Surely, there still are many Western investors who are not aware of most of these issues and brainlessly invest in China, for instance through diversification with index funds. But apart from that, the increasing geopolitical tensions (China's attitude and position with regard to the war in Ukraine, as well as the increasing threat regarding Taiwan, and the recent UN report) have made China overall a very risky investment in the West for the long term, due to the rising possibility of future economic sanctions. The latter risk will undoubtedly receive the most attention, already in the short term, because even passive investors will be aware of it. The only alternative to Western investors are non-Western investors, but the ones that have the money, such as India, seem more likely to invest it in their own country than in China. Perhaps, China can push a part of its losses abroad through its Beld and Road initiative, but that merely seems a recipe for another debt bubble. What is your guess on how this will play out?

[@MineCartable]

@@patrickvanraes2092 China already has a history of masking risk to western investors. Up until now its been primarily through shell companies, and they act doubly as a way of getting cash flow for Chinese companies, but also as a way of separating the foreign investors from the meat of the operation. Though it is notable that the biggest way this method has been used up until this point was basically by pretending that the shell company *is* the real company. However, there is reason to believe that there are boringly and bureaucratically named holding companies that are used as round-about investment vehicles for some of China's major industries such as Sinopec. China has a history in using this kind of method, experience in doing it, and an understanding on how to make it tempting for the people who didn't learn their lesson the last dozen times.

[@MineCartable]

@@patrickvanraes2092 Also, in terms of how this will play out? The absolute best thing that China could do moving forward is to do all of the above. Trying to spread out the damage as much as possible without triggering any more alarms than they already have, and hoping for a miracle that they can push through the factional in fighting and local corruption to work at fixing the core problems. Though in reality it's probably going to play out about as well as 'perfect plans' normally do with some unforeseen event causing the entire thing to blow up in their faces.

[@KittyKontrol850]

The Barnes guy has got my vote after that commercial

[@zdrux]

You can buy a condo in Toronto that hasn't completed building yet.. they're all mostly sold out before the completion. Although the regulatory framework is probably more robust than the one in China.

[@linusjacobsson2419]

Thank you for the videos on China! I find it hard to wrap my head around the situation without them

[@DaveRobinsonYT]

This is a brilliant summary of the end of times for the Chinese Real Estate bubble. I would add for emphasis that ordinary savers took the risk of buying unbuilt apartments bc of a lack of faith in the equity markets that are seen as little more than a casino as Boyle has previously mentioned. Many of the contracted but not delivered apartments are 2nd and 3rd homes, bought solely as investments (although nominally the homes of sons and daughters). Lastly, if this weren’t bad enough, homes that ARE delivered are delivered “grey” - as concrete boxes without flooring, kitchens, tile work or even toilets. When prices were riding, families would hold these non-functional apartments merely as investments.

[@jonathantaylor6926]

Not only "grey" but very VERY poorly built. Like need-to-be-imploded bad. Skimping on cement (the most expensive component) in concrete mix is like a Chinese national pastime.

[@albacan]

Thank you. Your's is an objective analysis.

[@sweealamak628]

A good business "Helps people, for a profit". While others "Profit from people, with deception"

[@MarkSir]

16:48 Can anyone elaborate on why currency appreciation can take the economic loss? Thanks in advance!

[@bepamungkas]

It's not that currency appreciation can take economic loss. As Patrick said, its a "source of wealth transfer to fill the holes". What he means, probably, is that the usual consequences of currency appreciation (pressure on inflation, weaker export and cheaper imports) would shift economic output toward a different sectors that could benefit the most from given condition. E.g real estate, which mostly done by locals for local consumers, would be weakened; while some manufacture industry might still be profitable despite lower margins due to drop in imported material cost. It will still be terrible for your average citizen. But making some sector tank the loss is way better than letting the entire system limp forward slower or ,worse still, collapse.

[@markpukey8]

At its most extreme, inflation makes your debts worth less. If you owe $100,000 and you only earn $50,000/year, it will take many years to pay off the loan. But if inflation skyrockets and now you earn $200,000/year (just 400% rise) then that loan looks a lot smaller and you can pay it off easier. I don't think Patrick was imagining anything that extreme. But even smaller inflation numbers can add up over time to making the debt seem easier to pay off.

[@polariz666]

As always, excellent content and wristwatch game.

[@dmitrynova]

There's also a problem with oversupply in the housing market, IMO. There's just so much empty property that it's basically priceless, i mean worthless. All those people who believed in the RE market will soon find that there are no clients they can sell all that property to. And that is what the biggest timebomb is. So, what we're seeing now might be just the tip of the iceberg and i have no idea how the gov would ever deal with the basic oversupply problem. The prices will have to come crashing down to market levels, and those levels are far lower than mortgages on them, and we all know what that means for the banks and the whole economic system...

[@AndyWallWasWeak]

a correction/drop without rebound is likely due to demographics, oversupply, quality issues, fraud awareness, etc. once market turns, everyone will suddenly remember all these negative risks so well forgotten until now

[@scottyflintstone]

This channel is really good

[@ramonjimenez1020]

In AMERICA alone I am a plumber and the pipes that got installed 20 yrs ago needs to get replaced. Plastic is king in a plumbing system

[@Karearearea]

Your China videos are my favourite