China: Even Once-Healthy Real Estate Developers Face Major Woes

Back in October, China’s central bank governor described China Evergrande’s debt problems as an “isolated case.”

In December, Evergrande – the nation’s largest real estate developer — was declared in default.

Apparently, however, it turns out that Evergrande is not an “isolated case.”

A Jan. 7 CNBC articles notes:

Shimao, one of China’s healthiest real estate developers, has reportedly defaulted — a sign of how more pain is ahead for the heavily indebted industry.

Elliott Wave International’s Global Market Perspective, a monthly publication which provides analysis of 50-plus worldwide financial markets, is not surprised by this development. The October issue noted:

A plunge in Evergrande’s share price will foreshadow a decline in China’s real estate market.

The November GMP followed up:

Last month, GMP cited previous calls for an ever-widening Chinese property decline and stated, “That is happening now.” [emphasis added]

Clearly, the crisis ranges far beyond China Evergrande.

And, here’s another noteworthy comment from the GMP – this one is from the December issue:

Despite the recent deterioration in China’s real estate market, belief in the Chinese government’s capacity to manage the crisis continues to run high. This is true even as it turns further away from capitalism and further toward communism. As GMP noted in October, China’s government recently revealed its willingness to micromanage every aspect of the economy in the name of “Common Prosperity.” The slogan comes directly from the original communist party chairman Mao Zedong, who introduced it in 1953. It didn’t work out so well the first time as China saw no material growth in GDP from 1958 to 1975. The irony of its reintroduction should prove even more profound this time.