0:04 this episode is brought to you by
0:07 brilliant hi welcome to another episode
0:11 of Cold Fusion how did a 1979 panel with
0:24 this it's a strange question but hear me
0:28 out in the late 1970s David atra was
0:30 having trouble entering China to film
0:32 his documentaries he decided to join a
0:34 committee panel in China in order to
0:37 change this atra just happened to ask a
0:39 Chinese higher pericial Den Xiao ping
0:41 what China was going to do about their
0:44 rapidly growing population in answering
0:46 David's question it was here on this
0:48 panel that China's one child policy
0:51 would be revealed to the world this
0:53 policy decision would Cascade into a
0:56 myriad of problems both demographic and
0:58 economic I've covered China's broader
1:00 economic woes in the previous video so
1:01 check the link below if you haven't
1:04 caught it yet but as for our story in
1:07 China there was now too few young people
1:09 the world's most populous country has
1:11 hit an historic turning point today
1:13 China announced its first population
1:16 decline in six decades government data
1:18 shows the birth rate at a record low the
1:20 fewest babies born last year since the
1:24 founding of communist China in 1949 this
1:26 but things would only get worse in July
1:28 of 2022 when a data leak showed that
1:30 Chinese authorities have have
1:32 overcounted the population by over 100
1:34 million young
1:36 people China now has too many
1:38 residential buildings and not enough
1:40 buyers with the real estate market about
1:44 30% of China's GDP and 70% of Chinese
1:46 wealth tied up in the sector I don't
1:50 have to tell you that this is a big deal
1:52 at the center of the crisis is everr
1:54 which was once one of China's largest
1:56 property developers by sales it had
1:59 1,300 real estate projects in over 200
2:03 80 cities in China housing 12 million
2:06 people yet the company is over $320
2:08 billion in debt making it the world's
2:10 most indebted real estate company with
2:12 the company filing for bankruptcy and
2:14 some high up officials being arrested
2:16 analysts fear that this could be China's
2:19 Leman Brothers moment since the Chinese
2:20 economy is the second largest on the
2:23 planet it's not hard to see why a total
2:25 real estate collapse would send shock
2:27 waves throughout the world now that we
2:29 have all of this context how bad will it get
2:30 get
2:32 to find out let's take a deeper look
2:38 itself you are watching T Fusion
2:41 TV before we continue I just want to
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3:26 started okay so let's continue ever
3:29 Grand was more than a property developer
3:30 you might be surprised to know that they
3:32 dip their toes into far-reaching Fields
3:35 as far as EVs and theme parks for
3:38 example everr new energy had ambitious
3:40 goals to compete with Tesla and China
3:43 and dominate the EV industry by 2025
3:45 they were planning 14 different car
3:48 models and 5 million cars per year everr
3:50 spring produces bottled water and
3:52 claimed to be China's largest water
3:56 source ever Grand also owned not one but
3:58 four soccer teams and they participated
4:01 in China's professional League everr
4:03 operated 15 theme parks under the name
4:05 Fairyland which aimed to be Disneyland
4:09 in both size and service however beneath
4:11 the surface these lofty Adventures were
4:13 funded by a pile of growing debt but
4:15 more on that
4:18 later everr began as a small company in
4:21 guango in 1996 they grew into a giant
4:22 due to a lucky break that happened in
4:26 the 1990s economic progress in China had
4:28 lifted Millions from poverty and into
4:30 the middle class and what do middle
4:33 class people want houses and lots of
4:37 them in 1998 China allowed households to
4:39 buy and sell apartments with countless
4:41 Millions gaining Prosperity over the
4:43 following years there was a huge surge
4:45 in housing demand the government
4:47 incentivized home ownership they relaxed
4:50 mortgage rules gave tax benefits and
4:53 allowed easy Bank lending meanwhile ever
4:56 Grand's founder Hui kayen saw his
4:59 chance to get started he strategically
5:01 acquired land at favorable prices from
5:03 local governments often providing
5:05 upfront payments and ambitious sales
5:08 targets for his employees this approach
5:10 led to the company's successful IPO in
5:13 Hong Kong in 2009 and it transformed its
5:20 billionaire from 2010 to 2020 ever
5:22 Grand's Revenue increased year onye at
5:25 its peak everr had a market value of $47
5:29 billion and assets worth 353 billion its
5:32 portfolio expanded from residential to
5:35 include commercial real estate hotels
5:38 Resorts schools hospitals sports
5:41 stadiums and cultural centers but all
5:42 would not remain well for the property
5:45 giant a series of events would threaten
5:47 E Grant and the stability of the Chinese
5:53 whole ever Grand's growth strategy was
5:55 straight forward first they would borrow
5:57 money for land acquisition and then sell
5:59 these homes to buyers before the homes
6:01 were even built they would then use the
6:03 proceeds to repay lenders and fund the
6:05 next project this approach while
6:06 lucrative bore the resemblance of a
6:09 classic Ponzi scheme the consequences of
6:12 which would come back to haunt
6:14 evergrand it was an aggressive
6:16 unsustainable expansion strategy in
6:19 order to work it relied heavily on
6:21 Perpetual borrowing and it worked well
6:23 for two decades but came at a steep cost
6:26 and that cost was a huge amount of
6:29 debt but ever Grand's massive debt
6:31 wasn't his only problem betting on
6:33 property and National Pastime in China
6:35 was causing further economic problems to
6:40 surface property ownership is very
6:43 important in Chinese culture some men
6:45 even deem it necessary to find a life
6:48 partner during China's one child policy
6:50 parents sadly preferred to keep only
6:53 male children as a result today men
6:55 outnumber women for those in their
6:58 mid-40s and below and usually if a man
7:00 couldn't afford his own property their
7:02 parents would help chip in over the past
7:04 few decades property demand has been
7:07 driven in a small part due to romantic
7:10 reasons as demand for property caused
7:12 the market to overheat even more fuel
7:14 was added to the fire and this included
7:16 a lack of other stable investment
7:19 options in China Investing in real
7:21 estate is preferred to stocks or bonds
7:23 as it's seen as safer and more
7:26 profitable two easy access to credit
7:29 through online platforms and relaxed l
7:31 in standards this helped China's
7:34 household debt to GDP ratio Surge from
7:38 18% in 2009 to a staggering
7:42 63.3% by March 2023 a three-fold
7:44 increase in just 15
7:48 years number three an increasing Trend
7:50 in property speculation many investors
7:52 bought properties in developing areas
7:55 intending to sell them later at a higher
7:58 price before long tiny apartments in
8:00 Shanghai were fetching City
8:02 London or New York type prices despite
8:04 the wages in Chinese cities being much
8:08 lower currently about 70% of household
8:18 estate so thinking that there was more
8:20 demand than there actually was ever
8:22 Grand overbuilt in some areas but why
8:24 would they think that there was more
8:26 people left to buy houses than there
8:28 actually were it could be because of
8:30 this next point
8:32 the one child policy was enacted on
8:35 faulty data the literal rocket scientist
8:37 who calculated the projected population
8:40 of China sjan forgot to factor in
8:41 declining birth rates due to women
8:44 getting educated and contraceptive
8:46 proliferation his predictions ended up
8:48 being completely wrong the consequences
8:51 of which would be very serious last year
8:54 births in China dropped sharply to 9.56
8:57 million that sounds like a lot but it's
9:00 the fewest since 17
9:04 90 and things just get worse a 2022 data
9:06 leak from the records of Shanghai police
9:08 showed the details of 1 billion Chinese
9:10 people the leak is believed to be
9:12 authentic and it paints a staggering
9:14 picture the population has been
9:18 overcounted by over 100 million people
9:20 to give you an idea of the scale of the
9:22 problem the Chinese government 2020
9:25 census showed that there were 18.4
9:28 million people who were born in 2017 30%
9:31 more that were born in 2002 but the 2022
9:33 League data says that there weren't 30%
9:36 more people born on this year but 70%
9:40 fewer born than in
9:43 2002 this isn't just a miscalculation
9:45 but a complete demographic disaster in
9:47 the making soon there's just not going
9:49 to be enough young people to support the
9:53 Aging Generation demographer Y fushan
9:55 has looked closely into China for over a
9:57 decade his findings line up squarely
10:00 with the data leaks giving them more
10:02 credibility in short Chinese property
10:04 developers built for a projected
10:07 population boom which never happened and
10:09 to add to this youth unemployment has hit
10:10 hit
10:12 21.3% making buying a property
10:14 increasingly hard for the younger generation
10:52 um the culmination of all of these
10:54 factors have created vivid imagery of
10:57 the problem eerily empty concrete husks
10:59 that dot the skyline in certain region
11:01 while sometimes these developments
11:04 eventually see habitation today more
11:11 empty no sounds of cars or people just
11:14 empty concrete towers and in some cases
11:16 they're completely demolished in one of
11:18 the most spectacular examples of wasted
11:21 resources as both demand for housing and
11:23 China's population growth have slowed
11:25 down in recent years developers like
11:27 everand are facing even more pressure to
11:29 sell their properties to repay their
11:31 debts but collecting revenue from
11:33 property sales has been proving harder
11:39 thought while the housing market was red
11:41 hot XI jingping was watching with a Keen
11:43 Eye the property sector was getting out
11:46 of control and action needed to be taken
11:49 fast in 2020 XI jingping ordered the
11:51 authorities to implement strict and
11:53 stringent regulations that would shake
11:56 everr and China as a whole these would
11:59 be known as the famous three red lines a
12:01 strict debt reduction and financial
12:04 compliance policy that had one main goal
12:06 to reduce the economy's heavy Reliance
12:07 on the property sector which was now
12:10 approaching 30% of
12:12 GDP ever Grand as well as many other
12:14 developers failed to meet these
12:16 requirements they continued to
12:19 accumulate debt everr spent huge sums of
12:21 money on costly land Acquisitions and
12:22 overbuilding during the property Market
12:25 frenzy Ventures into unrelated sectors
12:27 such as electric cars and theme parks
12:30 had little to no profitability moreover
12:32 the company lacked transparency and
12:34 engaged in deceptive Financial practices
12:36 concealing its true debt and cash flow
12:37 from regulators and
12:40 investors all these factors created The
12:41 Perfect Storm for
12:46 everr by 2021 ever Grand owed over $300
12:49 billion and this was owed to Banks Bond
12:52 holders suppliers and investors to put
12:54 that into perspective that is more money
12:57 than the GDP of Finland or Pakistan in
13:00 total Chinese develop had debts
13:04 exceeding trillion us stop and think
13:06 about that for a second throw in the
13:09 Chinese government zero covid policies
13:11 the strictest lockdown in the world and
13:12 there was a great level of uncertainty
13:15 and risk around the property sector the
13:22 set ever Grand announced a trading halt
13:23 in October
13:26 20121 however it didn't give details on
13:30 why the trading suspension lasted for 17
13:32 months and during that period ever
13:33 Grand's wo
13:36 deepened the liquidity crisis numerous
13:39 defaults on bond payments plunging share
13:41 prices and junk ratings from credit
13:45 agencies in 2021 alone the company lost
13:48 $81 billion customers were also
13:50 disgruntled with their unfinished
13:53 properties investors demanded refunds or
13:55 compensation this series of setbacks
13:57 over the last few years have eroded
14:00 everg grind's market value by
14:03 99% from a record high of 42 billion to
14:06 the company now worth 1 billion today on
14:09 August 17th 2023 everr made a final
14:11 attempt to save itself from Collapse by
14:14 seeking chapter 15 bankruptcy protection
14:15 in a New York
14:18 Court this form of bankruptcy protects
14:20 the US assets of foreign companies from
14:22 creditors during debt restructuring in
14:25 their home country in doing this everr
14:27 hoped to avoid potential legal actions
14:30 by us Bond holders while it facilitated
14:32 its restructuring process in China this
14:34 kind of bankruptcy protection doesn't
14:35 guarantee a successful debt
14:38 restructuring or even default avoidance
14:40 because it still requires approval from
14:41 Chinese courts and
14:44 Regulators another massive Chinese real
14:46 estate developer Country Garden would
14:48 overtake everr but they would also
14:51 instantly trip over Country Garden lost
14:55 7.1 billion in the first 6 months of
14:58 2023 investors concerned about potential
15:00 debt default have sent its stock
15:03 plummeting meanwhile ever Grand's shares
15:06 resume trading on August 27th 2023 17
15:08 months after that trading hold and it
15:11 was a disaster increasingly more
15:12 information about what's happening with
15:13 these structurings of course the poster
15:15 child off it's this everr reported
15:17 results in the weekend it's resuming
15:21 trade today this one's going through the
15:23 floor isn't it yes it'll just like many
15:25 of the other developers that have
15:27 resumed after a year plus of activity
15:29 everg Grand investors have 7 months of
15:32 news to react to uh since then we've had
15:35 $85 billion of losses that ever has
15:36 reported over the last 2 and a half
15:38 years instantly there was a massive
15:41 sell-off and the stock plunged 87% in
15:44 just one day this wiped out $2.2 billion
15:48 in market value on September 18th 2023
15:50 some arrests were made at evergr
15:52 Financial wealth management it's not
15:54 clear what the arrests were for but
15:56 police have only stated that they were
15:59 quote suspected criminals the stock fell
16:02 another 25% on the news and with that
16:04 Swift decline it's looking like the once
16:11 fallen ever Grant's collapse is
16:14 unprecedented in Chinese history it's
16:16 affected various sectors and people from
16:19 iron or miners to steel and cement
16:22 producers home retail businesses
16:24 construction workers and more as the net
16:26 worth of Chinese citizens reduces with
16:29 property prices spending in load local
16:32 and international markets will decrease
16:34 as mentioned in the previous video if
16:35 the Australian government doesn't
16:37 diversify its trading exports there
16:40 could be a ripple effect here the US
16:43 Hong Kong Japan South Korea many Western
16:45 nations in Europe and the global economy
16:54 continues and remember the middleclass
16:55 investors that we spoke about earlier in
16:57 the video many of these home buyers now
16:59 have paid deposits on unfinished
17:01 properties it's another issue in This
17:04 calamity ever Grand has pre-sold more
17:06 than 1.4 million homes that have not yet
17:09 been delivered many buyers are families
17:12 who invested their life savings and now
17:14 they risk losing their money on these
17:16 homes we may talk a lot about numbers
17:19 and policy decisions but this is the
17:20 true human
17:25 cost overall new construction is down
17:28 24.5% just this year alone prices in
17:30 some areas have Fallen by as much as 25%
17:34 from their October 2021 Peaks the banks
17:35 and other financial institutions that
17:37 lent money to evergrand could face
17:40 problems of their own for ever Grand
17:42 there's about $20 billion owed to
17:45 foreign investors this isn't to mention
17:46 the belt and Road initiative by China
17:48 carried out in over 149 different
17:50 countries ever Grant was one of the
17:53 biggest buyers of construction materials
17:55 so it's clear to see that with ever's
17:57 bankruptcy spilling into Global markets
17:58 the KnockOn effects could change the the
18:01 livelihood and well-being of millions of
18:03 people not just in China but
18:06 overseas as quoted by Fortune Magazine
18:10 on August 17th 2023 Chinese real estate
18:12 may be the world economy's most
18:18 [Music]
18:22 sector so is this China's Leman Brothers
18:25 moment well the answer is not so simple
18:27 yes both cases involved a highly
18:30 leveraged and opaque sector sectors that
18:31 were critical to the economy and
18:34 financial system and both had an element
18:37 of global risk however it's important to
18:38 note the distinctions China has an
18:40 advantage in a state controlled banking
18:42 system though whether you call that an
18:44 advantage or not depends on your view
18:46 regardless the Chinese government has
18:47 already supported the banking sector
18:49 with liquidity and relaxed some
18:51 regulations to ease the pressure on the
18:53 property Market but there's no
18:54 indication that they're going to bail
18:56 out ever Grant or any of the other
18:59 developers that are in trouble
19:01 authorities might even use accounting
19:04 methods to avoid major bank failures
19:06 this opinion was shared by George Mangus
19:07 a research associate at Oxford
19:10 University's China Center he States
19:13 quote in a state banking system the
19:15 authorities can move liabilities around
19:17 the financial system and use extend and
19:19 pretend accounting to ensure that major
19:21 Banks don't fail and that smaller ones
19:24 can be made good or managed as necessary
19:26 China also has a huge Foreign Exchange
19:29 Reserve and tight Capital flow control
19:31 unlike the United States which is the
19:33 world's biggest debtor Nation China is
19:34 actually the world's biggest creditor
19:36 Nation but all of this doesn't mean that
19:38 there's going to be no damage there are
19:40 legitimate concerns about the global
19:42 impacts given the size and influence of
19:44 China's real estate economy right now
19:46 it's about damage control but it's going
19:49 to take time maybe even years to revive
19:51 the industry once consumer sentiment
19:52 changes so drastically in a housing
20:00 back so in conclusion ever Grand's
20:02 collapse marks a significant challenge
20:04 for China as we look ahead the stakes
20:06 are exceptionally high for major
20:08 industry players in the country at the
20:10 same time it's a tense moment for those
20:13 whose Financial Futures are in Jeopardy
20:15 at this stage the only things that would
20:17 stop this from getting worse is
20:18 government intervention or a
20:21 stabilization of house prices on a final
20:23 note China does have many state-owned
20:25 property entities so it's very possible
20:27 that they could just take over and stem
20:28 the bleeding it's a totally different
20:31 kind of economy and with murky data it's
20:33 difficult for anyone to provide a
20:35 concrete analysis but in saying all of
20:37 this as is always the case this
20:40 unfolding financial disaster comes down
20:42 to Reckless financial decisions damaging
20:44 lives but this time there's some dodgy
20:46 government population estimates to go
20:48 along with it so what are your thoughts
20:49 on this matter let me know in the
20:51 comment section below I'm sure it's
20:53 going to be a very interesting
20:55 discussion anyway that's about it from
20:57 me my name is toogo and you'll been
20:59 watching cold fusion if you want to see
21:01 anything else on science technology or
21:04 business feel free to subscribe it's
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21:10 one [Music]
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