Last week, a court in Hong Kong ordered that Evergrande, China’s massive property developer, must be liquidated. Real estate accounts for about one-quarter of China’s GDP, and Evergrande isn’t the only troubled part of the Chinese real estate sector. While I’d always like to see China constrained, not only is a collapsing China dangerous, but the real estate collapse also reminds us of what’s happening domestically.

Business Insider reported on Evergrande’s liquidation, which has long been expected and which will be carried out in an orderly fashion. The assets are valued at $245 billion (which I suspect is inflated), while the company’s debts are $300 billion. As with an American bankruptcy, secured creditors get first dibs on any money from the liquidation, with the people carrying out the liquidation then getting their fees. The dregs will be for unsecured creditors and shareholders. Offshore investors will be lucky to see pennies on the dollar.

What’s more interesting about the report by Huileng Tan is what’s going on with the rest of China’s real estate market. That’s because Evergrande isn’t the only company hurting. While restructuring is possible, writes Tan,

At large, Evergrande’s fate reads like a warning sign to other companies in China, Margulies said.

That’s because the court order to liquidate Evergrande signals that problems of this size in China “will likely end up in some form of liquidation, whether onshore or offshore,” Margulies said.

[snip]

China’s economy has been struggling to recover since it started lifting pandemic-related restrictions more than a year ago. It’s facing significant headwinds from a property crisis, deflationary pressure, and a demographic crisis.

China, the world’s second-largest economy, grew 5.2% in 2023. While that was better than the COVID-battered performance of 3% in 2022, it’s still one of the economy’s worst showings in three decades.

Market sentiment over China’s economy is so bad that the country’s stock markets sold down massively in the first weeks of January as investors made a dash for the door.

Notably, the stock market sell-off came before Evergrande’s liquidation order.

Currently, China’s economy is a Potemkin Village. It looks very grand, but behind the scenes, it’s hollow. Its real estate market is a shambles; its Belt and Road initiative, which seemed to be the perfect example of economic colonization, is fading; and its population is in demographic freefall.

As someone who does not like the idea of an ascendant China, I should be pleased. After all, it’s a socialist state with a mercantilist economy (that is, a fascist economy) that’s been built for years on slave labor, along with government funding to undercut other nations’ industrial sectors and industrial espionage. It’s also got a huge military and has allied itself with some of the world’s worst actors, buddying up to people and countries that aren’t just bad to their own citizens but also pose a threat to America.

However, while I’m good with China being brought to heel, I don’t forget that, when a despotic country starts collapsing, one of the most effective tactics it has to recover its wealth and, therefore, its power is to invade neighboring countries. With an exceptionally weak man at America’s helm, Taiwan is looking ripe for the picking…and if that goes well, don’t expect China to stop there. That means that, on Biden’s watch, we’ll have lost Afghanistan, we’re on the verge of losing Ukraine (no matter how much taxpayer money is laundered there), the Middle East is at war, and China is eyeing the Far East. None of this is good.

Moreover, when we look at what’s happening in China, the last thing we should feel is smug, for we, too, have what’s essentially a fascist economy, with the government and America’s big businesses in bed together, allied against small businesses and the American people. And when I say “allied against the American people,” I’m also talking about the cultural war that big corporations, from Disney to Target to Nike, are waging against American values and racial cohesion.

Worse is the coming collapse of the commercial real estate sector. Across America’s big leftist cities, office buildings stand empty. The left drained them during COVID, sending workers home, and workers don’t want to return. Moreover, for many companies, the overhead of having to send to a home-based employee a computer and monitor, as well as providing health care benefits, is infinitely preferable to carrying a huge office lease with all the attendant costs (e.g., insurance, maintenance, etc.).

In downtown San Francisco, the vacancy rate was 5% before Democrats used COVID to defeat Trump by breaking the economy. As of October 2023, the last quarter for which there’s data, it had a 25% vacancy rate, with Los Angeles coming in at 24%. Other big cities aren’t quite as bad, but there will be a reckoning.

You all remember the 2008 real estate collapse, right? This will be worse. So, while it’s tempting to gloat at what’s happening in China, just wait until it happens here.

Image: Evergrande’s Hainan towers before their government-ordered demolition. YouTube screen grab.