China's Economic Crisis

In 2008, the United States saw a collapse of the real estate market.  Mortgages, which had long been very reliable loans, had been innovated with various market instruments so that they became far less reliable.  All was fine as long as housing prices kept skyrocketing.  Of course, they didn't.  Foreclosures swept the lands and some big companies folded.  However, the houses existed and could be sold by the banks.  The former owners took a hit on their credit scores but were no longer stuck paying a mortgage they couldn't afford.  It took several years, but the economy recovered.

Today, China is seeing the start of their housing collapse.  Throughout the country, citizens have long invested in real estate as the only safe investment.  Somewhere around 70% of all savings goes into real estate.  A little more diversity might have been wise, but the Chinese have been burned by their stock market.  Unlike in the US, the houses on which the citizens are paying mortgages do not necessarily exist.  While the prices were soaring, the builders would sell prospective houses to citizens and then use the money to buy more land where they could promise more buildings.  They would sell these to yet more citizens.  The buildings might be begun but have often not been completed.  Recently, mortgage payers have declared that they will stop paying unless the building resumes.  Evergrande, a major player in the Chinese real estate market, has claimed the unbuilt houses as collateral to secure further loans.  Of course, the non-existing buildings belong to the mortgage payers, not Evergrande.  Shenanigans!  When it collapses, there will be little property to liquidate.  The house of cards that China has built is enormous, dwarfing our 2008 disaster.

On top of this internal catastrophe, China's Belt & Road Initiative is at risk.  It has offered vast sums to other countries in loans to build infrastructure and secure trade partners.  Many of these loans are not performing as hoped (e.g., Sri Lanka's recent meltdown).  Some of the infrastructure is useful (e.g., ports, railways, etc.) but some is purely symbolic (e.g., Lotus Tower in Sri Lanka).  The point of the loans for China should be to increase the income back to China; this is not currently the case.

Given this, China is approaching a crisis that could threaten the government.  It is possible that the government would start a war to divert the populace.  Taiwan beware.