This is tom and remember the ever grand crisis from a few months ago. Well well if you thought it was over think again it's back with a vengeance. If you remember evergrand. One of china's largest real estate developers had until the end of july to propose a preliminary restructuring plan.

But guess what we're in august first there's no plan inside no surprises. There and never ground is just one company out of many it's a symptom of a bigger disease. How big well let's start from the top let me go back to the 2000s. So china saw massive gdp growth during the early 2000s mainly fueled by its boiling.

Hot property market. The demand was going through the roof and prices kept going up. And what can only be described as humanity's most impressive greater full theory. Now people bought the real estate simply based on the idea they could resell it at a profit later on to an even bigger idiot now this made the chinese property sector already pretty shaky and unsustainable.

Even before the current crisis and just to give you some context the average mortgage payment in china is now about half half out of a home buyers average monthly income when people pay half their salary for a mortgage they ain't gonna last long now that being said you know like in every greater full theory the cracks kind of start to appear before anybody notices including myself i'm not gonna lie. But over the past few years there's one thing you cannot argue about the chinese gdp growth rate is starting to decline in 2007. Not too long ago china's gdp grew by 14 in a single year for. 2022 china is guiding for 55 percent still an impressive number assuming the reported numbers are correct.

But you know not the double digit growth. We used to see now the big problem with china is that it has become so dependent on its real estate market. It can't let it collapse direct investments in real estate in china are about 15 of its current gdp. While total investments.

Including construction residential property development. Everything else that goes into construction is about one quarter of the chinese economy. So one can assume that you know a collapse in this sector is going to lead to a massive all out collapse of the entire chinese economy and right now things are not looking so hot. In that front in fact.

China's top 100 real estate developers. Just reported a 40 drop in home sales in july. That's compared to the same period last year. On a month to month basis.

We saw a drop of 29 from june and 50 from the beginning of the year now that's not amazing and definitely not something to write home about. But what's actually going on here is quite sinister. It's much worse you see the chinese real estate bubble is popping right in front of our very eyes and the chinese real estate developers. All suffer from the same thing that evergren just went through you just don't know it yet all of them have too much debt to a little cash and not enough of it to finish their existing commitments.

What does it mean for the chinese developments right it means that the chinese developers are all broke for a long time they've been faking it they've been robbing peter to pay. Paul basically they have been taking customers money for projects that are not even close to being started and using these new customers money to build homes for the old customers take new money pay for all projects sounds like a ponzi scheme to me i mean the problem with this business model is that it's always ending in the same manner. The debt keeps piling up and you need more and more money more and more new home buyers to finish all projects and the developers basically keep chasing their own tail month of the month of the month until they run out of new customers and with many projects stranded in limbo for years chinese homeowners had enough having lost confidence in the ability of the developers to actually build their apartments and the ability of the government to actually keep their real estate market from collapsing. They simply decided to say it we aren't paying you a dollar.

More sparking the biggest mortgage boycott in chinese history right now we have millions millions of chinese homeowners in over 90 cities simply refusing to make mortgage payments as we speak. The mortgage boycott in china is spreading like wildfires homeowners in china are now basically refusing to pay mortgages on stalled projects. Even if it means losing the property. Imagine how bad things have to be for people to just stop paying mortgages and risk losing.

The apartment makes you think what kind of value these apartments actually have right now let's go back to the broke developers. Because i'm done with you guys on the one hand. They're running out of cash due to the major reduction in sales activity right while at the same time. Existing clients are now refusing to make their payments.

All while they're actually about to collapse under the weight of their own debt. Now. You see evergren was not some outlier like the ccp wants you to think in fact. It's a very much template of the entire chinese property market.

Let me show you how this snowball is basically going to cause a domino effect of epic proportions that's going to collapse. The chinese property market. And it might happen faster than anyone can imagine so. Here's what's going to happen step by step number one home sales in china are not likely to pick up as uncertainty over basically.

This craziness the construction delays and whatnot keeps getting worse number two customer sentiment. Keeps dropping. It's getting worse by the day and demand for new homes basically goes down number three cash flow to developers is now much slimmer and existing home prices drop. Because of lack of demand.

Reducing the little revenue developers. Even still had from before and without any ability to generate any substantial new cash flow. Number four in the next few months you're going to hear about more and more chinese developers facing liquidity challenges and number five the banks are going to see what's going on and going to run for the hills. They're going to be cutting credit lines to these developers due to high risk profile number six you will start hearing of other chinese developers facing risk of total collapse exactly like evergrand now this is going to leave china with very few horrible options number one let the real estate sector.

Collapse and take the chinese economy with it unacceptable number two bail out developers unacceptable. Number three take over the projects yourself and finish. Them unacceptable. Now it's kind of a pick your own poison.

No win dilemma it can either be fast or absolutely horribly slow. But in both options the implosion of the ponzi scheme that is the chinese property market is inevitable. According to recent reports china is actually working right now on the 150 billion dollar bailout fund to complete the stall property projects instead of the developers so it seems like option number three might be the one. But does it really matter.

I don't think so now here's the problem for the past 10 years. We heard. Many experts talk and write books about how the decline of the us and the rise of china are inevitable now i would suggest you actually diversify yourself out of these sort of expert opinions and read a book by somebody who actually knows what the they're talking about now if you're looking for a credible source. I suggest you read the recently released book by peter zan the end of the world is just the beginning now i can recommend this book.

I'm not solicited. I'm not sponsored. I paid it with my own money but in this book zen actually talks about the future of the us. Europe and china in light of this whole changing global cluster that we're actually seeing in these years and his bottom line is quite simple you see everything is deglobalizing and the us has the best conditions to make it out of this basically with the least amounts of punches mainly because of friendly borders.

Easy to defend geography access to the atlantic and pacific oceans. Having the best banking system. The most developed capital markets. While having energy independence and agricultural independence china on the other hand as you will read in the book has none of these.

And luckily for you i made a whole video. Explaining and laying down all the challenges. China is facing in the next 20 30 years. The video is right here go check it out and as always don't forget to subscribe right here to the channel.

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