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By Jeff J. Brown
Sixteen years on the streets, living and working with the people of China, Jeff
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First article referred to,
Transcript
Jeff J Brown: Hello, everybody. I’m in Oklahoma City, Oklahoma, where I grew up in Oklahoma. I with my daughter and son-in-law and my first grandchild, which is a real pleasure. And my wife will come. I’m staying for three weeks and then my wife comes the next day after I leave, so she’ll be with them for three weeks. So, we’re stretching it out. And in fact, that painting behind me of the aspen trees was painted by my mother. So that’s quite sweet of my daughter and son-in-law to put that up and they’ve got the other paintings in the house that she did, which is really, really sweet.
Anyway, I want to talk about the article I wrote about Chinese real estate and how debts are handled (https://seektruthfromfacts.org/cwg/more-doom-and-gloom-from-zerohedge-et-al-about-chinas-economy-crashing-ive-been-hearing-this-crap-for-40-years-here-is-why-the-chinese-will-keep-right-on-chugging-along/). I had someone who contacted me and asked some very good questions.
He says, well, what about I buy an apartment for $200,000 and I sell it for $100,000? What happens to that $100,000 loss? I went back and listened to the program that I did earlier and what I wrote and I realized I did not do a good job fully explaining the system and how it works. And I should have been more clear.
I can understand why it caused some confusion. When I said that the Chinese financial system and banking system will go out of its way to make a homeowner whole, I was talking about those people who own their first and only home. 85% of the Chinese own their own home. Many of those are out in the countryside. In total, 65% of those are paid off. So, we’re only talking about 35% of the people who own their first home. If they get in trouble and they cannot pay their mortgage, they’re having a hard time.
Someone whatever sickness, illness, death, et cetera, the banks will go out of the way to make sure that that family keeps their first home. Remember, in China, the people own the land. There is no private dirt. You can only get a 70-year lease on anything including McDonald’s or me or you. You can lease a piece of land or an apartment or condo et cetera or a house for 70 years, renewable after 70 years. They also own the banks. The Chinese-owned banks are publicly owned, so they’re people-owned. All the insurance companies too.
And again, they have a handful of small private banks and a handful of small private insurance companies, to test them and see how they do. But essentially, banking and insurance are people-owned. They own the media. The media is people-owned. And of course, there’s the public censor who they can contact if they want to complain about anything that is not in the news or is in the news and shouldn’t be in the news. And it’s all very above board. And of course, the Communist Party of China is there to help hold it together and manage it et cetera.
And so, they have like five aces in a four-ace deck of cards. So, what they will do if someone is, and if it’s their first house and only house, they will do what they can to lower mortgage payments. They can freeze mortgage payments. They can shave off the principal, et cetera. They’ll do anything they can. They will contact the family, and the family members to do everything they can to make sure that that family keeps their home. So, what if somebody buys a second home? Well, that is not appreciated by Baba Beijing (the Chinese government), they do not like people buying second homes, because most of them are sitting there empty as an investment. And so that’s considered speculation, which in China speculation is a real taboo.
If those houses, those second homes get in trouble and they can’t pay the mortgage, then I am sure that Baba Beijing would love to get their hands on them, nationalize them, and sell them back to somebody who is looking for their first home, because they have been warned over and over again, the Chinese have been warned for years and years and years about investing in residential real estate is not what is appreciated because they don’t want people who cannot find a house.
And of course, if they’re sitting there empty, it drives the price up. In any case, they can do all kinds of things. I have friends who have houses in Shenzhen and Beijing, et cetera, and the government has come in and put a price cap on their apartments. They’re saying you can’t sell that apartment for more than 10 million RMB, to control bubbles. They can also, if the market is falling, they can also put a floor and say this apartment can’t sell for less than so much until the market stabilizes.
They can enforce transaction taxes, value-added taxes, real estate taxes, again, anything to discourage people from getting involved, in residential real estate as an investment. If a big company like Evergrande, you may have heard of Evergrande. These massive real estate companies that are highly indebted, if they go bankrupt and they have actually sold stock in the United States and around the world, well, those people out there, they’ve lost their money because you’ve invested in stock markets.
You’re considered to be a speculator and there’s no pity for investors. However, what they would do is, is they take what they can get inside China. They would take all of Evergrand’s assets and they would go into the portfolio and, “Oh, you’re a first-time homeowner. We will do everything we can to help you.” “Oh, this is a second home.” These are second homes that are investments by people who are trying to speculate on residential real estate. Sorry.
We’ll just nationalize those and we’ll allocate those to state-owned enterprises (SOEs) so that they can sell them to first-time home buyers. So, you have to look at the status of the family that owns the house. First-time home buyers, they will bend their backs over to keep them in the house. Secondary homes, investment homes, and speculative homes then they’re going to be lost because they’ve already been warned that that is not what should be done.
As far as stock markets, shadow banks which have been almost destroyed in China, they’ve gone in and pretty much wiped them all out. Hedge funds, There’s a huge hedge fund that Zero Hedge keeps talking about. It’s the Black Rock of China. Well, I can guarantee you that Baba Beijing is licking its chops because if that thing goes under, they will just sit there and do the same thing. They will nationalize the assets. You are a greedy speculator for being in that hedge fund.
You will lose your investment and we will take the assets that are there and allocate them that are remaining and allocate good assets to the state-owned enterprises for investment in infrastructure, et cetera. And of course, since the banks are people-owned, the insurance companies are people-owned then there’s a lot of places for them to put that kind of thing.
Also remember, that China’s national consumer and mortgage debt is a fraction of the debt that is in the West, Canada, the United States, England, Western Europe, Australia, New Zealand, Japan, et cetera who are those who have just skyrocketing debt that will never, ever, ever be paid back. China’s debt is actually quite manageable. Westerners who don’t want to believe that China’s a communist-socialist country or sit there and go, “Oh, the state-owned enterprises are not really SOEs because they have private stock ownership.”
It is true that many of them, especially the big SOEs have private stock ownership, up to 20% of the book value, for example, the Bank of China or People’s Insurance Corporation, et cetera. However, 80% gives the state a lock-tight grip on how that company is managed. And of course, almost every state-owned enterprise in China, the CEO and much of the high-level management are all members of the Chinese Communist Party.
And that 20% that is allowed to be sold to the public is highly controlled. They limit the amount that foreigners can invest. And then whether you’re Chinese or you’re a foreigner, they very carefully vet the purchasers to make sure that no one can accumulate a significant portion of that 20% because they don’t want anybody to have undue influence. So, they will go through and make sure that that you’re not using fake names, et cetera, to stop a George Soros to try to go in.
And that’s not going to happen in China. It’s just not going to happen. They’re going to make sure that they know who is buying, how much they’re buying, and where they’re from et cetera. That’s why SOEs are safely in the hands of the people because they are state-owned, which means they’re people-owned. I think that’s about it. I just wanted to point those things out and clarify, and I should have done a better job when I wrote that first article. And I hope that this answers the questions that my friend sent me.
And I also will tell you, my wife and I, when we were living in Beijing. We saw second homes, empty building after building, empty apartment buildings, all scooped up by investors speculating that the prices would go up. So, the government really, really, really watching. We lived in one, and almost all the other buildings, the buildings around us were mostly empty because they were speculation investments. Also, private hedge funds, shadow banks, and those kinds of people.
When I was in Shenzhen, I’d be walking home and they’d be handing out fliers to me, of course, in Chinese. And these were shadow banks. These were frickin shadow banks and hedge funds that were trying to, and they were scouting for people to pump their money into these private investments. Those go under? You lost it, baby. And whatever’s left, the government will take and reallocate to state-owned enterprises that can put them to good use. I hope that answers some questions.
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Do yourself, your friends, family and colleagues a favor, to make sure all of you are Sino-smart:
Google ebooks (Epub) and audiobooks:
44 Days Backpacking in China: The Middle Kingdom in the 21st Century, with the United States, Europe and the Fate of the World in Its Looking Glass https://play.google.com/store/books/details?id=YBKHEAAAQBAJ
https://play.google.com/store/audiobooks/details?id=AQAAAECCkQXRlM
China Rising: Capitalist Roads, Socialist Destinations https://play.google.com/store/books/details?id=YNmLEAAAQBAJ
https://play.google.com/store/audiobooks/details?id=AQAAAECCfHo86M
BIG Red Book on China: Chinese History, Culture and Revolution
https://play.google.com/store/books/details?id=6Wl4EAAAQBAJ
https://play.google.com/store/audiobooks/details?id=AQAAAECCfHo86M
Amazon print and ebooks (Kindle):
44 Days Backpacking in China: The Middle Kingdom in the 21st Century, with the United States, Europe and the Fate of the World in Its Looking Glass
https://www.amazon.com/gp/product/1484939999/
China Rising: Capitalist Roads, Socialist Destinations
https://www.amazon.com/China-Rising-Capitalist-Socialist-Destinations/dp/0996487042
BIG Red Book on China: Chinese History, Culture and Revolution
https://www.amazon.com/BIG-Red-Book-China/dp/1673322719/
Author page:
https://www.amazon.com/Mr.-Jeff-J.-Brown/e/B00TX0TDDI
Praise for The China Trilogy:
Why and How China works: With a Mirror to Our Own History
JEFF J. BROWN, Editor, China Rising, and Senior Editor & China Correspondent, Dispatch from Beijing, The Greanville Post
Jeff J. Brown is a geopolitical analyst, journalist, lecturer and the author of The China Trilogy. It consists of 44 Days Backpacking in China – The Middle Kingdom in the 21st Century, with the United States, Europe and the Fate of the World in Its Looking Glass (2013); Punto Press released China Rising – Capitalist Roads, Socialist Destinations (2016); and BIG Red Book on China (2020). As well, he published a textbook, Doctor WriteRead’s Treasure Trove to Great English (2015). Jeff is a Senior Editor & China Correspondent for The Greanville Post, where he keeps a column, Dispatch from Beijing and is a Global Opinion Leader at 21st Century. He also writes a column for The Saker, called the Moscow-Beijing Express. Jeff writes, interviews and podcasts on his own program, China Rising Radio Sinoland, which is also available on YouTube, Stitcher Radio, iTunes, Ivoox and RUvid. Guests have included Ramsey Clark, James Bradley, Moti Nissani, Godfree Roberts, Hiroyuki Hamada, The Saker and many others. [/su_spoiler]
Jeff can be reached at China Rising, je**@br***********.com, Facebook, Twitter, Wechat (+86-19806711824/Mr_Professor_Brown, and Line/Signal/Telegram/Whatsapp: +33-612458821.
Read it in your language • Lealo en su idioma • Lisez-le dans votre langue • Lies es in deniner Sprache • Прочитайте это на вашем языке • 用你的语言阅读
[google-translator]
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