So there has been all this conversation in the last 3 weeks time that China will bailout Russia.
Because when Russia becomes a paria in the EU and in America China will magically save the Russian economy on their own.
At least this is the conversation many are having.
And it is so clear that the people who say this have no insight into the Chinese economy in the year 2022 what so ever.
Let us talk about why China can not help Russia out financially in 2022!.
China as huge problems on their hands as we speak and that is a busted real-estate economy.
Mainly started by one very large company called Evergrande.
So this is the largest real-estate developer in the world and it has a very strange story where the company goes from nothing to having a 150 billion $ in assets in 10 years time!.
The company was founded by Hui Ka Yan in Shenzhen China.
And they developed a lot in Guangzhou to start with.
China has aspired to be the largest economy in the world by 2030 and they have also wanted to be the factory for the whole world.
These two things goes hand in hand.
The real-estate market has pretty much gone up every year since 2005 in China and the way the property i sold has also created this debt monster that the Chinese government is sitting with at the moment.
The big issue for China has been that most of the real-estate built by Evergrande has been non commercial so basically apartment for Chinese workers moving in from the country side to work in the factories.
What we need to point out is that Evergrande is the well know developer, but our sources say that there are over 1000+ Chinese real-estate developers that are deeply in debt.
So with out sugar coating is basically we had a Chinese housing crash that took place in 2020 and 2021 that we have not heard so much about in the Western mainstream media.
The reason companies like Evergrande could grow so fast was that they took on huge amount of debt(loans) and at one time had over 1200+ projects going on in over 100 Chinese cities at once.
So before even one project was half ready new projects where started.
This all was to accommodate the farmers that where moving in to the cities in the early 2000s.
During this time there was a lower middle class growing in China which was estimated in 2020 before the Covid-19 hit to be around 400 million people.
And the real-estate market was the main driver for this.
So the way the Chinese real-estate market has worked is that the worker saves up enough money to put down a down payment of roughly 25% to buy an apartment that is yet to be built.
Usually many relatives save up to this down payment together to be able to buy the first apartment for the family.
But what Evergrande and many Chinese developers did was that they used this money from one project and put it into another project.
And many times there was big delays in finishing the apartments that where promised to the customer.
But this business model worked as long as the real-estate prices where going up every year.
So around 2007 a lot of Chinese normal workers and the middle class started to invest in apartments that where yet to be built with the hope of cashing out once the project was finished.
Basically they where speculating for the future.
The big problem for normal citizens in China is that you can not really leave your property with the bank if you get foreclosed on.
You will own this debt for the next 30+ years or until paid.
There is also in China an insane system that if you have a bad credit score you get blacklisted for jobs and you are not allowed to ride the high-speed trains around China.
Do not ask us why this is the case?, nobody really know what debt has to do with high-speed trains.
And this is not Amtrak, it is very modern high-speed trains that China has developed with great success over the past 20 years time.
The bigger issue is that the state has allowed these real-estate companies to build even ghost cities, where almost nobody lives and this has all been just a huge waist of money.
Then when foreign large companies builds factories in a city then comes the real-estate builders like Evergrande and they start to build apartment’s for the workers.
The big issue with this is that if a few factories closed then the real-estate market crashed because people needed to move out to where the jobs where!.
There are so many horror stories in social media in China where people are trying to give away their apartment that they bought for 500.000 $ , 5 or 10 years ago.
Because they still own 150.000-250.000 $ on it.
And thet can not pay off this debt at the moment.
The bigger issue is that as an apartment owner what ever costs are being accumulated you are still responsible for them even when you have been foreclosed on in China.
There is today in March 2022 an estimate that over 37% of all mortgage holders are under water with their mortgages in China.
And this is the ticking financial time bomb in China.
What makes the real-estate crisis so very bad in China is that a lot of people have invested all their money and even taken out loans and handed this money over to Evergrande and others for apartments that have yet to be built.
So basically these investors(apartments buyers) have lost all of their savings and are also deeply in debt!.
If we look at the Evergrande stock it has gone down -89% in one year, and it is down -79% in 5 years time.
This is also one of the reasons why the Chinese state have asked the main owner and Founder of Evergrande to cover with his private wealth some of the foreign bond payments that the company has defaulted on.
At this point in time the Chinese state is trying to keep Evergrande from crashing into a big black hole, and if they would allow Evergrande and others to crash that would be a 20x compared to Lehman brothers default!.
So this is one of the really serious economic things going on in China when it comes to their domestic financial issues.
The second really large and difficult financial matter for the Chinese state is that many Japanese and Western companies have been leaving China for the past 5 years time.
This just increased more after the Covid-19 Outbreak where companies saw their logistic chains break when China could not supply parts.
And not to mention the price increasments in container shipping from China to the US and Europe.
This alone has gone up around 7 times of what it was in January 2020.
So a container that cost 2.000$ to ship in January 2020 is now 14.000$ for the same items to ship.
This also means that a lot of importers might not want to take any orders when the freight cost is so high at the moment.
So many Chinese workers are also currently unemployed when factories have and are closing every day moving the job’s back to Japan, South-Korea or the West.
Chinese communist party has a lot of of internal problems also to deal with, there are power struggles behind the scenes with to flanks going at it!.
So the Kremlin and Russians banking on China coming in as some kind of savior to Russia, those dreams will not come true.
China will do a few things for Russia and they are not pretty, looked upon from the outside.
The major thing that China will do is to buy all the raw materials, Oil and gas that Russia can produce.
But China will buy with big discounts, so if Russia gets today from the US and from Europe 100$ for something China will only pay 70$ for the same item!.
And Putin and Russia has no way of really standing firm on prices towards China.
The second thing that China will do is that they will supply Russia a lot of products like components that will hold much lower quality compared to if Russia would buy these in Europe or from the US.
The third thing that China will be looking at is to get access to Russian females, meaning that the Chinese state is looking to move Russian girls to China for marriage.
Since there is a huge imbalance in China between the two genders.
Any sane person who has an economical background or has worked in the commercial global trade are shaking their heads as we speak!.
The Russian economy has been shaky since 2014 when Russia when in to Crimea the first time and some sanctions where put on Russia.
But that was a small wind blowing compared to this hurricane.
Russia has destroyed it own economy in less than 30 days and this will linger for decades to come.
So 30 years of financial progress in Russia, has been destroyed by Russia itself in less than 30 days time.
Books will be written about this topic for decades to come.
Most private Russian business owners are very depressed right now since they know that their business will not be able to work with the EU or the US for many years to come.
But this thing with letting Putin get away with everything for the past 15 years time is also a lot of their own fault.
The middle class has supported Putin in many elections, and here we are!.
So basically Russia is not goanna get the help and support they believe they will from China because China is always only looking out for themselves.
And with the domestic problems that China has now, Russia will be a country that pretty much will take their marching orders from Beijing for the upcoming two decades at least!.
Yes there are young brave Russians trying to fight Kremlin and Putin, but the middle class and the middle aged people are not hitting the streets, and we do believe that 60%+ are supporting these war crimes that Russia is inflicting upon Ukraine at this moment.
So when you hear somebody say that China will bail out Russia and we in the West are the big losers, ask them about the domestic internal problems with the real-estate crash that is going on in China at the moment and listen what they have to say about that?.
It is very clear that most people do not understand the Chinese economy, and they just speculate that China is so financially powerful at the moment.
Basically China is ending its own middle class as we speak due to this financial real-estate crash that is going on at the moment and the cracks has just started to show!.
We can write many articles on the Chinese and Russian economy, but here is a short version on why China will not be able to bailout Russia in the way most people expect them to do.
Our business clients are lucky, due to the fact that we have people in our company that has worked in both Russia and China for the past 40 years time.
So we can truly support our clients, every step of the way.
Today one of our clients could not get a shipping date from China due to Russia not allowing Chinese rail containers to go true Russia towards Europe.
We are talking about at least 1 million containers per year that is suppose to go true Russia.
So now we have to sort out another route for our client.
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