Naked Capitalism has the article Is China’s Debt Crackdown Hitting California’s Commercial Real Estate Bubble?.
This comes at a time when the Chinese government is cracking down on capital flows from China to other countries, particularly to fund real estate projects, and when it is also cracking down on the ballooning debt of Chinese conglomerates, after a reckless binge of buying up everything in sight. HNA, Anbang, and other conglomerates are now being forced to unload these toys. In HNA’s case, this includes the $305 million deal to sell a building in Manhattan a year ago. And it has put numerous other recent acquisitions on the market.
Anbang Insurance Group, which had purchased the Waldorf Astoria in New York for nearly $2 billion in 2014 and which in 2016 handed Blackstone Group $5.5 billion for a portfolio of 15 hotel properties, collapsed and has been taken over by Chinese regulators, and its founder was sent to prison. Now these investments are up for sale.
Chinese regulators are apparently not afraid to regulate, unlike their USA counterparts.
For a long time, as I have been reading Modern Money Theory (MMT) blogs, I have noted that some commentators have been warning about the untenable situation with Chinese private debt. Until recently, I could not understand what they were talking about. The whole point of MMT is that countries like China that are sovereign in their own currency cannot run out of money and default on their debt. Michael Hudson has been publishing a lot of material lately that has clarified the point that I had missed. Public debt of the Chinese government is not a problem just as I had thought, but private sector debt is quite another matter. That was the also the whole point of MMT, also, but I couldn’t connect the dots.
Compound interest on the private debt gets to be a drag (overhead) on the economy. Compound interest grows exponentially, but there is no economy in the world where the productive capacity of the economy can grow exponentially for very long. One way or another, the government will have to intervene to put an end to an unsustainable growth bubble of private debt. Michael Hudson has been publishing lately about erasing debt, so the economy could restart with a clean slate.
In the current situation, the Chinese government may have a different plan on how to puncture the bubble. As Naked Capitalism put it,
China gets a cold and California real estate gets pneumonia.
As investors frequently say, the action that will burst the bubble will come from an unexpected place. I have certainly have not been expecting the Chinese government to be the one to burst capitalism’s bubble.