How on earth?

This was my first thought that went through my mind. It came from the BBC and I was reading this in a decent degree of unknowing. The title ‘China property giant Country Garden warns of up to $7.6bn loss’ (at https://www.bbc.com/news/business-66470170) where we see “Country Garden, which is one of China’s biggest property developers, has warned that it could see a loss of up to $7.6bn (£6bn) for the first six months of the year” and I am quite frankly at a loss. You see, a developer gets (read: buys) a piece of land, he places a building on it and sells this place(s) and in the end there is a profit, it might not always be a great profit, but a profit nonetheless. So when I see a loss of $7.6bn, the math in my head goes that at $250K it sets the stage for 30,400 houses and if a place costs 1.5 million we see the bungling of 5,065 places. Now it is not that simple. I get that, but the idea that someone set a stage where 30,400 houses are sold for $0 is equally laughable, implying that the problem is a lot larger than we can see. We saw it in the UK with Carillion, we saw a few examples and they all wanted ALL the profit and as such they did it all, all the elements of construction and all elements of the service. That never works, the moment a short cut is made, people start filling to holes and creating more holes in the process. 

Then there is the larger financial impact. How does a company like Country Garden has any setting that allows for that kind of a loss in the first 6 months? Even as the article gives us “The expected loss compares to a $265m profit for the same time last year. The firm also said it has set up a special task force, headed by its chairman Yang Huiyan, to find ways to turn the business around”, I reckon it might be close to ‘too late’, which is seen with “rating agency Moody’s downgraded the company’s rating, citing “heightened liquidity and refinancing risks”” and don’t expect me to give explanations. I have none. I have a few speculation, the first we saw in the beginning. But there was also the 2021 event when 15 buildings were demolished all in one go (at https://www.youtube.com/watch?v=Om6b0_ffyFQ), I cannot tell you the reason, I merely saw the YouTube on USA Today, and we get that one building needs to go at times (still sloppy), but 15 buildings? Now consider those costs and I am certain that those building in total would not have surpassed $2 billion. So now consider that one developer has well over 300% of those losses. Something does not add up and I cannot tell you what it is. In the first I do not have an economics degree, I have engineering, IT and Law degrees and I am still grasping for nothing at this time. The speculation I made earlier makes the most sense of stupidity. Yet it was speculation, so I could be wrong. As such, in an age in China where there are no jobs, there is a housing shortage and there are a few more issues. The 15 building demolition raises questions, the loss by Country Garden gives even more question marks. The Financial Times gives us “Nine months later, it is dangerously short of cash. The company expects to have lost Rmb45bn-Rmb55bn in the first half of the year and is confronting what it calls “the biggest difficulties” in its history.” (At https://www.ft.com/content/c266f377-33dc-4cf6-89a1-b62998896027) and it is not the first time. Evergrande in 2021 has a massive default and it seems to me that all these firms ‘doing it all’ are imploding. Is it a mere setting of idle time? Me and idle time go way back, all the way to the early 90’s and it is not the first time that idle time is overlooked or seen as a linear event, which it is not. It does not explain these billions of loss, it really does not but to see this in China implies that there is a lot more going on than we are able to see and that is never a good thing.

Enjoy the weekend.