>

They are a centrally planned government--they structure policy over decades...they know precisely what they are doing.
Not hard to understand.
Better pop the bubble when it's still managable. Without the three red lines, over time you get into a situation like sitting on a million megatons of TNT drowned on petrol while smoking a cigar. >

Mmm, I'm not questioning whether it's wise to deflate the bubble, but it seems strange to deflate it by immediately bankrupting one of your largest real estate firms (lowering supply). A sudden collapse is typically way more painful than a slow one after all, especially right after zero-covid lockdowns.
Why not, for example, set a higher debt ratio limit, then have pre-set points where the limit lowers? Or open investment into foreign equity to let some air out of real estate? Or any number of slower ways?
Basically, why Three Red Lines specifically. I would have thought the CCP was aware, or capable of being aware of the debt levels that Evergrande (and other real estate firms) were running at. >


Mmm, I'm not questioning whether it's wise to deflate the bubble, but it seems strange to deflate it by immediately bankrupting one of your largest real estate firms (lowering supply).

How does it lower supply? The CCP can just take that land and redistribute it. >

The supply of apartments is increased by firms that build apartments. In China you don't actually own the land the building is on anyway. >

Is that not the case for the west as well? Isn't it normal to have separate entity for the land and building? 
Say the landowner can lease the land for Company A to set up a hotel and pay a monthly rent to the landowner. This creates a cheaper upstart cost of instead having to pay millions to build something on a piece of land.
Or is this a cultural shock? >

In general, in the US and UK (And I think in other EU nations? Not 100% on that), you own the land under your house. In some cases, you even own the geological rights etc. for any underground resources as well.
For apartments, of course, typically you do not own the land under the apartment unless you own the entire building. Landowners may lease land to construction companies as you describe as well, depending on what's most advantageous at the time (hotels often DO own the land they sit on).
In China, of course, you not only don't own the land, you don't even really "own" the house / apartment. You actually have a 99 year lease on the building. >

Saw a more recent youtube video on the unfinished apt problem there and more recently they were only giving 50 year leases.  Buyers were not happy but continued buying. >

Talking about China in the west is hard because there are huge cultural differences and people in the west, especially the US, tend to project their experiences and worldview onto the situation.
Wealth, fortune, etc. Are hugely important in Chinese culture. Ronnie Chieng does a bit about it and he's not wrong. The personal savings rate and national savings rates are much higher than in the US. Owning properties is also seen as very important culturally as well. It's hard to explain if you're not familiar. But it's different than the US. It's not just an investment.
The system also doesn't work the same here. In China, when you buy a new construction you pay the mortgage while it is being built. These people aren't protesting it being overpriced they're protesting paying for years for something they couldn't even move into. I think that's fairly reasonable. I also think the government response to aid them by letting the developers fail is reasonable too given the situation. 
Also, there's a lot of misunderstanding in the west of how the CCP operates. Must people operate on the assumption the CCP doesn't react to what the people want because they just kill people who complain. This is simply false. As the recent COVID protests illustrate. The CCP is very concerned with public sentiment and keeps a close watch on the public mood. They're actually quite responsive.
I've been around reddit long enough to know you can never talk about China in a nuanced, reasonable way without dealing with people accusing you of being a wumao or CCP troll etc. So I always turn comment notifications off. But, I would just say, if you are really interested in what China is actually like on the ground, the economist started a podcast devoted to it called the drum tower. It features journalists in China and Taiwan. Interviews with Chinese people, etc. I find it very fair. And while I don't think they've discussed the real estate much since it started you can still learn a lot about how things actually operate there that can help you better assess what is going on in general. >

This is very interesting >

Damn I do not know the answers to your question even remotely, but I learned a lot reading your excellent post!  Thank you. >

The real estate crisis in China has been going on longer than a year. They've been reporting on China's ghost cities for almost a decade, but it's only recently that they've been unable to continue to float these white elephants and reality is starting to take hold. >

A lot of what the CCP does is about pure messaging. Allowing one firm to collapse would be a strong message, especially since those firms probably also have assets and liabilities in the ghost economy. “None of you are too big to fail” seems like a clear and effective message, without actually stating this out loud. >

I wish we had this. >

They do this a lot, now that I think of it. They’ll pick one executive or official to blame and execute him. >

Executing executives has a certain poetry. >

Execute the executive execution >

Because China's government tend to be very reactionary to problems and then over corrects what it takes action (think COVID policy). The better time to have implemented something like the three red lines policy would have been +10 years ago. >

Incremental progress. Gotta start somewhere if you don't want to kick kicking the can further. >

I think the issue is that China didn’t do incremental progress. Instead of slowing deflating the real estate debt bubble with incremental red lines that reduce debt. China just did it all at once >

The Chinese people bought millions of apartments in ghost cities. Nobody wants to rent them and the government won't let them sell them...not that anyone wants to buy them. It's a disaster. >

I would need to investigate further, but on the surface of things sinking property and especially housing as an investment vehicle is good for human welfare. Housing should be used for housing, not as a trade commodity. >

The issue is that in China it’s so hard to invest in basically anything that housing becomes the only asset to grow wealth in and even then it’s not true “ownership” but rather a 99 year lease. If the US made it incredibly difficult for people to invest in the stock market then you would also expect to see a huge boom in housing prices. One way China could bring their housing prices back down to earth is just open up more avenues of investment in other sectors. >

Wasn't it a 70 year lease? >

Real estate will always bubble and burst. If you buy a house for 150,000 dollars, to only turn around and sell it for profit, then you’re gonna wait til you can sell it for 180,000 (let’s say). Then the person that bought it for 180 is going to sit on it and wait til they can sell it for profit, at 200,000 maybe. The value of that house maxes out. That person that bought it for 200,000 goes back to trying to get rid of it for 150,000. >

inflation has entered the chat >

>Shenzhen apartments are 20% more expensive than NYC
>renting an apartment in the city center of New York is 393.9% more expensive than in Shenzhen.
? >

The purchase price of an apartment in Shenzhen is 20% higher than the purchase price of an apartment in NYC.
The rental price of an apartment in NYC is 393.9% higher than the rental price of an apartment in Shenzhen >

Ahh, thank you kind person. >

Yeah the property values are absurdly high over there, but due to much lower wages you can only charge smaller rents.  The rents will never be profitable but hopefully you can sell for a profit later on. >

Evergrande: Look, we're too big to fail. Unless you bail us out, we're going to take down the whole economy with us. You have to stop us from failing. You have to.
CCP: No we don't. >

I’ve read your post 2-3 times.
It’s seems to ask two contradictory questions: did China not know about the real estate bubble?
And also
“Why did China act to solve the real estate bubble.”
And the whole tone is pretty patronizing. Like the only people who understand economics are white westerners. Let me ask you this. Why didn’t the US fed know that US lenders were packaging shit mortgages into MBS that were given A credit ratings and then sold on to duped investors while simultaneously allowing billions of dollars of derivatives predicated on these loans defaulting to  be traded? Did the US treasury and federal reserve not understand how the effects of this policy would be? Could they have overestimated the resiliency of the US real estate state market?
The communists look like they are doing a better job of managing their economy than the US has of late. Speculative bubbles, ponzi schemes, Enron, Theranos, Lehman, crypto, inflation disguised as increase corporate profits. I don’t know why people are so bullish on a country that seems to only know how to make overpriced drugs, social media, weapons and comic book movies. >

Mmm, I don't think you're understanding the post tbh:
I state clearly that I think 3 red lines is an attempt to reign in developers, and at no point question whether they understand there is a bubble: "Which gets to the root of the matter. The situation looked bad, and super fragile. I completely understand why policymakers would want to fix the situation. What I don't understand is the extremely blunt "three red lines" policy." So to modify your second proposed question, it's "Why did they act specifically in this way to address overleveraged real estate firms."
I find your weird aside into race and whataboutism to be misinformed. I would agree that the US Fed did not understand the true risk on MBS bonds, but that's not really relevant to this discussion. Yes, many times in history interesting things have happened, hence this entire subreddit.
Also, I'd point out that this situation has an extra wrinkle, the precise reason that this situation is weird is that the 3 red lines kinda force a default. If I were to draw a parallel, it's like if the US fed passed a policy requiring Goldman to be 2x leveraged at most or something.
Bringing up Theranos and Enron is just weird, those aren't really about systematic risk at all. And given that this very post is pointing out 700x rent prices on apartments, it's kinda funny you call China "the communists". Anyway, I'm not writing this from a China's relation to the US point of view, as this entire issue isn't really related to the US. >

Seems to me that they are lowering money supply and riding the inflation bull both at and with the US. This is a sector rotation play. >

The CCP is dismantling the capitalist structure it has built up over the last 30 years...this is a feature, not a bug. They know precisely what they are doing. >

I doubt they are intentionally doing that.  That capitalist structure has brought the country greatly increased wealth, education, and international influence.
They might underestimate the impacts of some policies, then might refuse to acknowledge the mistake due to the need to save face, but they won't kill the goose intentionally.