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 take even though I'm a licensed financial adviser, real estate broker and becoming a stock broker. This video is neither personalized Financial advice nor real estate advice for you. It is not tax, legal or otherwise personalized advice tailored to you.

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