China's Evergrande files for bankruptcy

The Chinese property market is the worlds largest ponzi scheme overlayed by the world's largest shell game overseen by a group of referees that are either so incompetent they don't understand what's happening or so corrupt that they don't care what's happening. Whichever it is the sweet 2000s music of economic expansion has stopped and there will soon be hundreds of millions of investors trying to find a non-existent chair.

That comment isn't hyperbole and I don't make it lightly, for example their residential property market is jaw droppingly stupid to any Westerner. Chinese people commonly hand over their life or generational savings to buy a home, really an apartment, in a building that may not exist yet and then begin paying the mortgage for 2 or 3 years before their place is done! The property developers, like Evergrande and Country Gardens, would then take their money and combine it with loans to build the properties. It worked for the last 25ish years because the demand was never ending as their population shifted from rural to urban. You'd "invest" in a home and even if you didn't want it in the end you could sell it for more than you paid for it due to ever rising demand.

In something shockingly similar to the US Sub-Prime Mortgage Crisis of 2008 those loans were often being made by Asset Management Companies using money gathered from regular Chinese people by Investment Companies that were unknowingly owned by those same Asset Managers. They got people to invest because they offered a higher rate of return than the traditional banks and it was seen by many people as less risky than their Plinko Game Stock Market.

It's all crashing down as the Chinese economy starts to deflate from a wicked mix of demographic decline, trade sanctions, and corruption so large that it can't be covered up any longer.

So while Evergrande is the big news they aren't the end of this merely the beginning. Country Gardens, the largest property developer in China, is also publicly struggling with up to 1.4 Trillion US dollars in debt to a mix of both State owned and Asset Management Companies, the latter often referred to as "Shadow Banks" or "Shadow Finance" because it's all so secretive.

So Evergrande and Country Gardens, really their entire real estate market, have managed to pull Zhongzhi Enterprise Group into crisis, one of those Asset Management / Investment Companies I was talking about, and put another 180 Billion USD or so at direct risk while exposing China's entire 2.9 Trillion dollar trust / investment industry to a domino effect.

Since China's Real Estate market is 30%, and seen estimates as high as 60%, of their entire GDP it's collapse would be a financial problem unlike anything the world has ever seen. By way of comparison the Real Estate market in the US contributes between 17% and 20% of it's GDP.

The whole situation is WILD and its entirely possible that we're going to watch the Chinese economy entirely implode on itself over the next 12-18 months. I'm not cheering for it to happen either, because just like '08 it's going hammer ALL economies, not just China's.