What China’s real estate bust means for you. By Sightbringer.
This chart is the largest destruction of household wealth in recorded history, executed deliberately by the state that owned it. …
China’s real estate market has erased all gains from the last 20 years
Ghost cities of investment vehicles
Twenty years of real gains gone means the primary savings vehicle of 1.4 billion people, sixty to seventy percent of Chinese household wealth, round-tripped to 2006. Nothing in the American 2008 experience approaches this scale.
Investment options within China are severely limited: basically real estate, gold, and a controlled stock market. The Government used to direct people to invest in real estate, but a few years ago switched to encouraging investments in gold instead.
The Chinese Government has hoarded at least 20,000 tonnes of gold, but probably nearer 80,000 tonnes, vastly more than the US Government (which supposedly has 8,000 tonnes, but much of it appears to be lent out, not in its vaults). There are persistent rumors that China will soon challenge the US for monetary supremacy with a gold-backed currency, in which case the price of gold will soar and the people of China will become gloriously wealthy.
The transmission runs from real estate to gold, the Chinese piggy bank. That connects this chart directly to the nineteen-month PBoC accumulation streak and the retail gold frenzy running through Shanghai and Shenzhen. The domestic store of value died, the capital account is closed, and the surviving vessels inside the wall are gold, deposits yielding nothing, and quietly, Hong Kong crypto rails.
The sovereign gold bid and the household gold bid are the same event: capital fleeing a dead asset class with nowhere else to go. …
The deliberateness is the part Western commentary refuses to metabolize. Xi drew the three red lines in August 2020, and the chart peaks within months. “Houses are for living, not for speculation” was a demolition order, executed to redirect national capital from land finance into manufacturing and strategic technology.
The demolition succeeded and then kept falling past the point of control, which is the signature failure mode of command economies: they can start avalanches and cannot stop them. The state chose this trade, prosperity of the household balance sheet exchanged for industrial supremacy, and the chart is the receipt.
What it does to the world: a China that cannot sell its citizens apartments sells the world overcapacity instead. The property bust is the engine of the export deflation machine, EVs, solar, chemicals, chips at the mature nodes, flooding out at prices that reflect a state subsidizing employment rather than seeking margin.
The darkest layer sits in legitimacy mechanics. The Party’s compact was prosperity for obedience, and the prosperity was denominated in apartments. A regime that can no longer deliver the wealth escalator has two remaining legitimacy channels: nationalism and security. Every percentage point this index falls raises the marginal value of the Taiwan card, the anti-American frame, the external enemy. The chart does not predict war. It repriced the incentive structure that decides one, and the direction of the repricing is unambiguous. …
News you can use:
The gold thesis strengthens at its root, because the largest population on earth just lost its default asset and the replacement flow has years to run [up in price]. The US disinflation-in-goods leg has a structural sponsor.
David Archibald:
The Chicoms scrimped and saved for the last 20 years to buy newly built apartments as a store of wealth. There are 65 million unoccupied apartments in China.
All that has been wiped out in the last five years. The wealth evaporation from this asset class is some US$20 trillion, which is the current annual GDP of the Chicom economy.
For the 300 million in the six coastal provinces that produce things, the per capita decrease has been US$67,000. That is US$200,000 for a family of three.
Therefore a great chunk of China’s population is demoralised.
Chinese domestic spending will be down a load and their GDP will shrink.
And it is impacting on their military. Chicom incursions around Taiwan in June this year were 60% down compared to last June:
