January 13, 2025 • 12 mins
As China's property market grapples with a deepening crisis, a highly concerning solution has emerged: settling debts with unsold apartments. Plus we discuss China's millionaire exodus
China Update provides listeners with the most up to date political, economic, and geostrategic analysis on China - so that you are on top of the world's number 2 economy. These podcasts are based on hundreds of articles, think tank reports, government statements and other resources in English and Chinese every week. The views and analysis are all my own and I produce the podcasts.
My Patreon: https://www.patreon.com/chinaupdate
Disclaimer: China Update is not a financial advisory channel. While I take great care in researching everything discussed in these podcasts, nothing I say should be taken as investment advice. Please speak to a professional before making any investment decisions. #China
China Update provides listeners with the most up to date political, economic, and geostrategic analysis on China - so that you are on top of the world's number 2 economy. These podcasts are based on hundreds of articles, think tank reports, government statements and other resources in English and Chinese every week. The views and analysis are all my own and I produce the podcasts.
My Patreon: https://www.patreon.com/chinaupdate
Disclaimer: China Update is not a financial advisory channel. While I take great care in researching everything discussed in these podcasts, nothing I say should be taken as investment advice. Please speak to a professional before making any investment decisions. #China
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Happy Monday, everybody. Welcome to another episode of China Update,
where I provide you with the most up to date political, economic,
and geostrategic analysis on the world's number two economy. My
name is Tony. Now, before we begin with today's episode,
I wanted to make a couple of personal statements to
you all. For those who want to go right into
the updates, that's fine. You can use the chapter feature
to skip to that part of the video. And yesterday's video,
(00:21):
I said that we may hit one hundred thousand subscribers
this week. The channel hit one hundred thousand subscribers within
two and a half hours of that video going live.
Now on Saturday's episode, I express my gratitude to all
to the China Update supporters, both old and new. I
won't waste your time by repeating a lot of that,
but I will on this occasion since the channel has
(00:42):
passed this milestone, just say a few words. China Update
is a one manned band. I research, write, film, edit, upload,
and manage the channel all myself. This is done every
day Monday through Saturday, sometimes Monday through Sunday, as it
has been this last week, and I've done that every
day for five years. I started the channel because I
(01:05):
believe that there was a lack of this sort of
content on YouTube. I felt that there was a lot
of punditry, both very pro and very anti China, but
that there was a lack of channels that were really
trying to explore what was happening on the ground in
China and trying to help people have a real balanced
understanding of the situation. I believe then, I believe now,
that it was critically important that the world have more informed,
(01:29):
more sober, and more grounded conversations about this complex and
consequential nation, and if I, through the channel, could even
in just a modest way, contribute to that, then it
was worth pursuing. It took two years for the channel
to reach one thousand subscribers, while I was doing videos
almost every day for two years with only a few
(01:50):
dozen people watching every episode. But at that time I
thought it was worth it because if for those few
dozen people that they got some value and they could
better understand this country than it was with my time
to continue with the videos. At that time, I had
absolutely no idea that the channel could get to the size.
In fact, it was beyond my wildest dreams at that time.
(02:11):
This is all a long way of me saying that
hitting this milestone with one hundred thousand, having so many
of you join me with these daily explorations of what
is happening in China is quite literally a dream come true.
Because of all your support, because of your following of
this channel, I now this year can move to doing
this as my full time job, something I also never
(02:34):
thought would be possible. So I guess once again I
just want to express my deepest gratitude and thanks. Thank
you for sticking with the channel, thank you for coming
along every day as we explore this country together, and
thank you for giving me the opportunity to share these
episodes with you all. I look forward to twenty twenty five.
It's an incredibly important year to be following China, and
(02:55):
I look forward to doing it with you all together.
There will be a special one hundred thousand subscriber episode
at some point, probably in early February, when I'm back
in New Zealand, because then I'll have a very strong
internet connection, and I'm thinking of perhaps doing a Q
and A and maybe even a live stream. I will
have those details released closer to the time, I'll let
you know how to ask questions if that's what happens,
(03:16):
and what the details of the live stream will be.
But for now, thank you once again that it was
a very long introduction. Thank you for sticking with it.
Now let's move into today's episode. As China's property market
as well as local governments grapple with their own deepening crises,
the former being the property crisis, the latter being the
local fiscal crisis, a highly concerning solution has emerged settling
(03:37):
debts with unsold apartments. Strapped for cash, Chinese developers and
now even local governments in some parts of the country
are increasingly turning to unfinished or empty housing units to
pay off their obligations in some strange warped barter system.
It is worth stressing this point again. There are so
(03:58):
many empty apartments and local governments are so cash strapped
that local governments in locations across the country, especially in
the poorer regions, are now beginning to settle debts in
unsold apartments. According to US outlet at The Wall Street Journal,
in a piece exploring this published over the weekend. In
one notable case, Sindjiang East Universe guess agreed to take
(04:21):
over two hundred and sixty unfinished apartments in Changxi City's
French themed residential compound to settle a twenty five million
US dollar debt in overd guess bills. The company plans
to sell the apartments, keeping any surplus proceeds or absorbing
losses if sales fall short. This approach underscores the severe
(04:43):
cash shortages faced by local governments and state own entities.
Changxi City Construction Investment Development, the primary DEBTA in this case,
reported one point eight billion US dollars in liabilities, but
only had ninety seven million US dollars in cash by
mid twenty twenty four. The trend extend beyond Sindjiang. Companies
such as Mona Lisa Group, a Quangdong based tile manufacturer,
(05:07):
and Sunfly Intelligence Technology and LED Producer have similarly accepted
apartments as payment. Mona Lisa accumulated nineteen million US dollars
worth of properties, while Sunfly settled fifty million US dollars
in debts by acquiring three hundred and thirty four apartments
from developers including Country Garden. Even public entities like police
(05:28):
departments have turned to the strategy in Quajio province, which
regular viewers will know, has long faced what is essentially
a de facto bankruptcy situation. Police departments in der Tiang,
Uping and thanan settled ten million UIs dollars in debts
by coordinating apartment purchases through developers. China's property market, burdened
by an estimated ninety million empty housing units, faces mounting challenges.
(05:50):
Local governments, once flush with cash from land sales during
the property boom, now struggle with ballooning debts and shrinking revenues,
and as we will see later in today's video, there
are other desperate moves they have resorted to as well.
The resulting cash crunch has led to underpaid civil servants,
rising labour disputes, and cuts to public services like education
(06:11):
and healthcare. Meanwhile, housing values continue to depreciate, as prices
in major cities have fallen for seventeen consecutive months. Experts
warned that while using apartments to settle debts offers a
temporary fix, it reflects deeper structural issues in China's economy. Obviously,
local governments and developers will need long term strategies, including
(06:32):
diversifying revenue streams and boosting market confidence to stabilize the
property sector for now. However, quote, getting half built apartments
is better than getting nothing at all end quote, as
one expert put it. Now, while we're on the property sector,
bond financing in China's real estate sector fell eighteen point
four percent in twenty twenty four compared to the previous year,
(06:53):
but shows potential for recovery as new policies begin to
take effect. That is the optimistic view, at least according
to report by the China Index Academy published over the weekend.
Developers raised five hundred and sixty five point three one
billion yen seventy seven point one billion UIs dollars through
debt instruments last year. Although bond financing has been declining
since the latter half of twenty twenty one, year on
(07:15):
year growth resumed each month since September twenty twenty four,
aided by a low base effect from the previous year.
The sustainability of the recovery, however, remains uncertain. The cost
of bond financing decreased significantly in twenty twenty four, driven
by interest rate cuts, structural changes in financing enterprises, and
adjustments in product offerings. Despite the reduced costs, the scale
(07:37):
of bank issuance shrank. Credit bond issuance fell eighteen point
five percent, overseas bonds plunged sixty nine point five percent,
and asset backed securities declined thirteen point six percent. Looking ahead,
developers face ongoing challenges in twenty twenty five. The report
suggests exploring alternative financing channels, extending debt maturities and refinancing
(07:59):
existing obligation to stabilize cash flows and navigate market uncertainties.
This week, guitar based Al Jazeera published a piece about
one Jane Mung, a pseudonym for a thirty one year
old wealthy owner of an import export business from Shanghai,
to explore the issue of China's ongoing millionaire exodus. Over
the last five years, Mung had steadily diversified her financial
(08:21):
dealings beyond China. Hong Kong became her primary business hub,
and more recently she opened a bank account in Singapore,
relocating much of her wealth. Her rationale is straightforward. Quote
China is not in a good place right now. In quote,
Mung's concerns mirror broader economic challenges facing China. Sluggish growth
protracted property market slump and high youth unemployment exceeding seventeen
(08:43):
percent have eroded confidence among affluent individuals. Additionally, the government's
sweeping crackdowns on technology, finance and private tutoring industries, coupled
with high profile cases like the disappearance of investment bankers,
have unsettled business communities. As we will see shortly, there
is another incredibly discerning trend which is also on the
mind of many millionaires. These anxieties are driving a growing
(09:05):
wave of capital flight. In twenty twenty three, China sow
thirteen thousand, eight hundred high net worth individuals leave the country,
with projections indicating that number could rise to fifteen thousand,
two hundred by the end of twenty twenty four. For context,
this exodus represents a fraction of china six point two
million millionaires, but signals a potentially troubling trend. Singapore, with
its robust financial infrastructure and proximity to China, has emerged
(09:29):
as a preferred destination for relocating assets. The city state
has seen an influx of wealth management offices and luxury
home purchases by wealthy Chinese mung who once lived in
Singapore sees it as her natural choice for relocation. China
grapples with economic uncertainties and attempts to restore trust in
its private sector. The outflow of capital and talent underscores
a pressing challenge regaining the confidence of its wealthiest citizens.
(09:53):
And one thing that isn't helping the situation at all
is a shocking practice we've been following on China Update
for some time now, the so called distant water fishing
that is a euphemism for the practice of local governments
and poorer regions typically arresting rich businessmen from wealthier parts
of the country, essentially to extort finds out of them.
This practice is so prevalent now that Beijing has had
(10:13):
to step in with a nationwide crackdown. Last week, the
powerful National Development and Reform Commission published guidelines discussing the
quote problems such as profit driven enforcement and distant water
fishing end quote, while the State Council issued a quote
document on strictly regulating administrative inspections on companies, aiming to
(10:34):
curb arbitrary inspections and effectively ease the burdens on companies
end quote. The situation is quite serious too, as Chinese
financial media outlet sit Sen writes last week, quote fines
and confiscations are a growing source of local government revenue,
jumping from one hundred and thirty billion yen and twenty
(10:54):
eleven to four hundred and twenty eight point four billion
yan in twenty twenty two. In the first eleven months
of twenty twenty four, local government incomes from fines and
confiscations increased almost twelve percent from the same period a
year ago. Debt laden regions are more dependent on this income,
especially at the municipal and county levels, where fines make
(11:17):
up eighty four percent and eighty two percent of local revenue, respectively,
with public security agencies, courts and other judicial bodies being
the primary authorities involved according to the study end quote
eighty four and eighty two percent. Now, at this point,
it is worth stressing that this is in some localities.
(11:38):
It shows how some poorer parts of the country are
in really dire straits, But it is worth stressing that
this is not the case in some of the wealthier
parts of the country, especially the Tier IE cities and
Tier two cities and coastal regions. Still, however, this is
a very concerning trend. Now, let's finished with this observation
by veteran China analysts Buil Bishop. Quote. The central government
(11:59):
has gotten Serrian is about trying to stop these business
destroying extortions, but many local governments are desperate for revenue
and will go where the money is. So until the
center offers better solutions for the local government fiscal problems,
the squeezing of business for revenue will probably not go away.
In quotes. Okay, that is today's episode of China Update.
(12:23):
Thank you everybody once again for your incredible support up
to this point. I look forward to the year ahead
exploring and trying to understand China with you all together.
Thank you for watching today's episode. Have a good Monday,
have a productive week, and I will see you all
tomorrow
Happy Monday, everybody. Welcome to another episode of China Update,
where I provide you with the most up to date political, economic,
and geostrategic analysis on the world's number two economy. My
name is Tony. Now, before we begin with today's episode,
I wanted to make a couple of personal statements to
you all. For those who want to go right into
the updates, that's fine. You can use the chapter feature
to skip to that part of the video. And yesterday's video,
(00:21):
I said that we may hit one hundred thousand subscribers
this week. The channel hit one hundred thousand subscribers within
two and a half hours of that video going live.
Now on Saturday's episode, I express my gratitude to all
to the China Update supporters, both old and new. I
won't waste your time by repeating a lot of that,
but I will on this occasion since the channel has
(00:42):
passed this milestone, just say a few words. China Update
is a one manned band. I research, write, film, edit, upload,
and manage the channel all myself. This is done every
day Monday through Saturday, sometimes Monday through Sunday, as it
has been this last week, and I've done that every
day for five years. I started the channel because I
(01:05):
believe that there was a lack of this sort of
content on YouTube. I felt that there was a lot
of punditry, both very pro and very anti China, but
that there was a lack of channels that were really
trying to explore what was happening on the ground in
China and trying to help people have a real balanced
understanding of the situation. I believe then, I believe now,
that it was critically important that the world have more informed,
(01:29):
more sober, and more grounded conversations about this complex and
consequential nation, and if I, through the channel, could even
in just a modest way, contribute to that, then it
was worth pursuing. It took two years for the channel
to reach one thousand subscribers, while I was doing videos
almost every day for two years with only a few
(01:50):
dozen people watching every episode. But at that time I
thought it was worth it because if for those few
dozen people that they got some value and they could
better understand this country than it was with my time
to continue with the videos. At that time, I had
absolutely no idea that the channel could get to the size.
In fact, it was beyond my wildest dreams at that time.
(02:11):
This is all a long way of me saying that
hitting this milestone with one hundred thousand, having so many
of you join me with these daily explorations of what
is happening in China is quite literally a dream come true.
Because of all your support, because of your following of
this channel, I now this year can move to doing
this as my full time job, something I also never
(02:34):
thought would be possible. So I guess once again I
just want to express my deepest gratitude and thanks. Thank
you for sticking with the channel, thank you for coming
along every day as we explore this country together, and
thank you for giving me the opportunity to share these
episodes with you all. I look forward to twenty twenty five.
It's an incredibly important year to be following China, and
(02:55):
I look forward to doing it with you all together.
There will be a special one hundred thousand subscriber episode
at some point, probably in early February, when I'm back
in New Zealand, because then I'll have a very strong
internet connection, and I'm thinking of perhaps doing a Q
and A and maybe even a live stream. I will
have those details released closer to the time, I'll let
you know how to ask questions if that's what happens,
(03:16):
and what the details of the live stream will be.
But for now, thank you once again that it was
a very long introduction. Thank you for sticking with it.
Now let's move into today's episode. As China's property market
as well as local governments grapple with their own deepening crises,
the former being the property crisis, the latter being the
local fiscal crisis, a highly concerning solution has emerged settling
(03:37):
debts with unsold apartments. Strapped for cash, Chinese developers and
now even local governments in some parts of the country
are increasingly turning to unfinished or empty housing units to
pay off their obligations in some strange warped barter system.
It is worth stressing this point again. There are so
(03:58):
many empty apartments and local governments are so cash strapped
that local governments in locations across the country, especially in
the poorer regions, are now beginning to settle debts in
unsold apartments. According to US outlet at The Wall Street Journal,
in a piece exploring this published over the weekend. In
one notable case, Sindjiang East Universe guess agreed to take
(04:21):
over two hundred and sixty unfinished apartments in Changxi City's
French themed residential compound to settle a twenty five million
US dollar debt in overd guess bills. The company plans
to sell the apartments, keeping any surplus proceeds or absorbing
losses if sales fall short. This approach underscores the severe
(04:43):
cash shortages faced by local governments and state own entities.
Changxi City Construction Investment Development, the primary DEBTA in this case,
reported one point eight billion US dollars in liabilities, but
only had ninety seven million US dollars in cash by
mid twenty twenty four. The trend extend beyond Sindjiang. Companies
such as Mona Lisa Group, a Quangdong based tile manufacturer,
(05:07):
and Sunfly Intelligence Technology and LED Producer have similarly accepted
apartments as payment. Mona Lisa accumulated nineteen million US dollars
worth of properties, while Sunfly settled fifty million US dollars
in debts by acquiring three hundred and thirty four apartments
from developers including Country Garden. Even public entities like police
(05:28):
departments have turned to the strategy in Quajio province, which
regular viewers will know, has long faced what is essentially
a de facto bankruptcy situation. Police departments in der Tiang,
Uping and thanan settled ten million UIs dollars in debts
by coordinating apartment purchases through developers. China's property market, burdened
by an estimated ninety million empty housing units, faces mounting challenges.
(05:50):
Local governments, once flush with cash from land sales during
the property boom, now struggle with ballooning debts and shrinking revenues,
and as we will see later in today's video, there
are other desperate moves they have resorted to as well.
The resulting cash crunch has led to underpaid civil servants,
rising labour disputes, and cuts to public services like education
(06:11):
and healthcare. Meanwhile, housing values continue to depreciate, as prices
in major cities have fallen for seventeen consecutive months. Experts
warned that while using apartments to settle debts offers a
temporary fix, it reflects deeper structural issues in China's economy. Obviously,
local governments and developers will need long term strategies, including
(06:32):
diversifying revenue streams and boosting market confidence to stabilize the
property sector for now. However, quote, getting half built apartments
is better than getting nothing at all end quote, as
one expert put it. Now, while we're on the property sector,
bond financing in China's real estate sector fell eighteen point
four percent in twenty twenty four compared to the previous year,
(06:53):
but shows potential for recovery as new policies begin to
take effect. That is the optimistic view, at least according
to report by the China Index Academy published over the weekend.
Developers raised five hundred and sixty five point three one
billion yen seventy seven point one billion UIs dollars through
debt instruments last year. Although bond financing has been declining
since the latter half of twenty twenty one, year on
(07:15):
year growth resumed each month since September twenty twenty four,
aided by a low base effect from the previous year.
The sustainability of the recovery, however, remains uncertain. The cost
of bond financing decreased significantly in twenty twenty four, driven
by interest rate cuts, structural changes in financing enterprises, and
adjustments in product offerings. Despite the reduced costs, the scale
(07:37):
of bank issuance shrank. Credit bond issuance fell eighteen point
five percent, overseas bonds plunged sixty nine point five percent,
and asset backed securities declined thirteen point six percent. Looking ahead,
developers face ongoing challenges in twenty twenty five. The report
suggests exploring alternative financing channels, extending debt maturities and refinancing
(07:59):
existing obligation to stabilize cash flows and navigate market uncertainties.
This week, guitar based Al Jazeera published a piece about
one Jane Mung, a pseudonym for a thirty one year
old wealthy owner of an import export business from Shanghai,
to explore the issue of China's ongoing millionaire exodus. Over
the last five years, Mung had steadily diversified her financial
(08:21):
dealings beyond China. Hong Kong became her primary business hub,
and more recently she opened a bank account in Singapore,
relocating much of her wealth. Her rationale is straightforward. Quote
China is not in a good place right now. In quote,
Mung's concerns mirror broader economic challenges facing China. Sluggish growth
protracted property market slump and high youth unemployment exceeding seventeen
(08:43):
percent have eroded confidence among affluent individuals. Additionally, the government's
sweeping crackdowns on technology, finance and private tutoring industries, coupled
with high profile cases like the disappearance of investment bankers,
have unsettled business communities. As we will see shortly, there
is another incredibly discerning trend which is also on the
mind of many millionaires. These anxieties are driving a growing
(09:05):
wave of capital flight. In twenty twenty three, China sow
thirteen thousand, eight hundred high net worth individuals leave the country,
with projections indicating that number could rise to fifteen thousand,
two hundred by the end of twenty twenty four. For context,
this exodus represents a fraction of china six point two
million millionaires, but signals a potentially troubling trend. Singapore, with
its robust financial infrastructure and proximity to China, has emerged
(09:29):
as a preferred destination for relocating assets. The city state
has seen an influx of wealth management offices and luxury
home purchases by wealthy Chinese mung who once lived in
Singapore sees it as her natural choice for relocation. China
grapples with economic uncertainties and attempts to restore trust in
its private sector. The outflow of capital and talent underscores
a pressing challenge regaining the confidence of its wealthiest citizens.
(09:53):
And one thing that isn't helping the situation at all
is a shocking practice we've been following on China Update
for some time now, the so called distant water fishing
that is a euphemism for the practice of local governments
and poorer regions typically arresting rich businessmen from wealthier parts
of the country, essentially to extort finds out of them.
This practice is so prevalent now that Beijing has had
(10:13):
to step in with a nationwide crackdown. Last week, the
powerful National Development and Reform Commission published guidelines discussing the
quote problems such as profit driven enforcement and distant water
fishing end quote, while the State Council issued a quote
document on strictly regulating administrative inspections on companies, aiming to
(10:34):
curb arbitrary inspections and effectively ease the burdens on companies
end quote. The situation is quite serious too, as Chinese
financial media outlet sit Sen writes last week, quote fines
and confiscations are a growing source of local government revenue,
jumping from one hundred and thirty billion yen and twenty
(10:54):
eleven to four hundred and twenty eight point four billion
yan in twenty twenty two. In the first eleven months
of twenty twenty four, local government incomes from fines and
confiscations increased almost twelve percent from the same period a
year ago. Debt laden regions are more dependent on this income,
especially at the municipal and county levels, where fines make
(11:17):
up eighty four percent and eighty two percent of local revenue, respectively,
with public security agencies, courts and other judicial bodies being
the primary authorities involved according to the study end quote
eighty four and eighty two percent. Now, at this point,
it is worth stressing that this is in some localities.
(11:38):
It shows how some poorer parts of the country are
in really dire straits, But it is worth stressing that
this is not the case in some of the wealthier
parts of the country, especially the Tier IE cities and
Tier two cities and coastal regions. Still, however, this is
a very concerning trend. Now, let's finished with this observation
by veteran China analysts Buil Bishop. Quote. The central government
(11:59):
has gotten Serrian is about trying to stop these business
destroying extortions, but many local governments are desperate for revenue
and will go where the money is. So until the
center offers better solutions for the local government fiscal problems,
the squeezing of business for revenue will probably not go away.
In quotes. Okay, that is today's episode of China Update.
(12:23):
Thank you everybody once again for your incredible support up
to this point. I look forward to the year ahead
exploring and trying to understand China with you all together.
Thank you for watching today's episode. Have a good Monday,
have a productive week, and I will see you all
tomorrow
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