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.
They were funded by private Chinese individuals as a way of investing…Since these are funded by private citizens, they are the ones that will lose their investment if the units aren’t filled.
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 make a good point. Since this was the most popular way of building wealth, the middle class was dependent on this. Since one of the strengths of any economy is buying power, and if a large number of consumers cut back because of a loss on their investments, that would hurt the economy.
I think I agree with your main point that it won’t hurt the Chinese economy by a large degree because of how it is structured.
Since one of the strengths of any economy is buying power, and if a large number of consumers cut back because of a loss on their investments, that would hurt the economy.
That’s a good point, but if there is a significant reduction in consumer demand as a result of these residential losses, the Chinese government can pump some free or cheap cash into the economy to pick up consumer spending, and they shouldn’t have to worry too much about inflation because they would actually be counteracting some deflationary pressures.
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 make a good point. Since this was the most popular way of building wealth, the middle class was dependent on this. Since one of the strengths of any economy is buying power, and if a large number of consumers cut back because of a loss on their investments, that would hurt the economy.
I think I agree with your main point that it won’t hurt the Chinese economy by a large degree because of how it is structured.
That’s a good point, but if there is a significant reduction in consumer demand as a result of these residential losses, the Chinese government can pump some free or cheap cash into the economy to pick up consumer spending, and they shouldn’t have to worry too much about inflation because they would actually be counteracting some deflationary pressures.