China’s Economy Faces Even Bigger Housing Crisis

Two years after Evergrande’s fall, distressed property giant Country Garden threatens to create worse problems

China’s giant housing industry is lurching into a new crisis that threatens to be the country’s worst yet. Two years ago, the debt-laden developer China Evergrande Group spiraled into insolvency, bursting the country’s real-estate bubble and setting off a chain of developer defaults and business losses.

The industry’s troubles have dragged down China’s economy. Now China’s largest privately run property developer, Country Garden, is struggling to survive. Unlike Evergrande, which was brought down by its profligate habits, Country Garden’s troubles come from the retreat of investors and home buyers from the industry.

Its financial distress could create far bigger problems for the economy and policy makers than Evergrande’s debt default in 2021. Country Garden focused much of its enormous footprint on rural cities and industrial zones, which were an engine of China’s growth in good times.

Those areas are now wrestling with strained government finances and an accelerating exodus of residents, leav- ing them less able to absorb the fallout from a large developer’s failure.

China’s economy is also sputtering on many fronts after a short-lived rebound from its post-Covid reopening earlier this year.

Economists predict the housing industry’s problems will deal another big hit to consumer confidence and prolong what has already been a protracted property-sector downturn.

Real estate and related industries contribute roughly a quarter of China’s gross domestic product. “The whole industry is in trouble,” said Kenneth Rogoff, an economics professor at Harvard University, adding that the problems are particularly severe in smaller and medium size cities.

Years of overbuilding have resulted in a huge oversupply of homes, and there will need to be an adjustment in the property market, he added. “How do you prevent the Chinese population from going into a panic mode since most of its wealth might collapse? It’s not easy,” Rogoff said.

Record loss

As of June 30, Country Garden was involved in more than 3,000 property projects encompassing millions of homes. It carried the equivalent of $186 billion in liabilities, including homes it sold but hasn’t delivered, money owed to suppliers, bank debt and bonds. Most of those obligations come due within a year.

The company reported a record first-half loss topping $7 billion after writing down the value of some of its property developments and other assets. Last month, the developer missed $22.5 million in interest payments on two U.S. dollar bonds, but scraped together enough cash before the end of a 30-day grace period to avoid defaulting.

Country Garden’s creditors in mainland China granted it payment extensions on some of its yuan-denominated debt, helping the developer buy time to resolve its liquidity problems.

Country Garden’s contracted sales of new homes in August fell 70% from a year earlier, to the equivalent of $1.1 billion. Without a rebound in sales, the developer will likely slide into default, analysts say.

Country Garden was founded in the 1990s by Yeung Kwok Keung, 68 years old, who grew up in a family of eight siblings in a village in China’s southern Guangdong province. A small house made of bricks, with tree trunks on top of the walls holding up a metal roof, sits at the company’s headquarters— a life-size replica of its original office.

A nearby sign reads: “Without a strong China, today’s Country Garden would not exist.” By the mid 2000s, the company was building residential projects that included townhouses, apartment buildings and mixed-use developments across the country.

It also owned and operated hotels. Yeung retired in March. His daughter, 41-year-old Yang Huiyan, is the company’s chair. Country Garden expanded over the years with a focus on smaller cities.

Researchers group China’s more than 600 cities into tiers based on their gross domestic product, population size and density, and other factors. The wealthiest cities, such as Beijing, Shanghai and Shenzhen, are in the first tier.

Those in the fifth tier are considered the poorest. Country Garden benefited from China’s redevelopment program in lower-tier cities beginning in 2015, which gave residents new houses or cash to buy them.

It also marketed and sold apartments in rural areas to people living in bigger, more expensive cities. In 2016, the developer’s contracted sales more than doubled, and they topped more than 500 billion yuan, equivalent to more than $69 billion at current exchange rates, for each of the next five years.

Country Garden bought more than 3,000 plots of land over the past decade to build homes. They included parcels in all of China’s third-tier cities, 86% of the country’s fourth-tier cities, and 44% of its fifth-tier cities, according to an analysis of the developer’s land sales records on Wind.

Evergrande, in comparison, had land in roughly a third of China’s fourth-tier cities and 12% of fifth-tier cities. The company told investors that the projects it launched in lower-tier cities produced much higher returns on investment than those in wealthier cities.

In Shaoguan, a fourth-tier industrial city in China’s southern Guangdong province with around 3.4 million people, Country Garden had four large residential developments that were among its top 100 projects nationwide last year.

The biggest one was designed to have thousands of apartment units, a hotel, a few preschools and several clinics. A 1,500- square-foot three-bedroom apartment there was recently advertised for sale at just under $100,000. City and provincial governments that previously derived a large chunk of their revenues from land sales to Country Garden and other private developers are already feeling the pinch from a plunge in transactions.

Some weaker provinces and cities are struggling with heavy debt loads. In many poorer cities, people’s incomes are lower and less stable, and local governments’ budgets and finances are more stretched.

Home sales and prices have declined more steeply in weaker parts of the country than in wealthy cities like Beijing and Shanghai. “Country Garden was synonymous with China’s mass-market housing and urbanization story,” analysts from Barclays said in a note in September, adding that it didn’t have as much debt as Evergrande and was widely expected to survive the housing downturn.

When the developer had trouble making debt payments last month, “it shook what little confidence remained in the market,” they added.

“Chinese households no longer view housing as a safe investment,” said Michelle Lam, a China economist at Société Générale. She said privately run developers currently account for one-third of China’s total housing sales.

Crisis of confidence

In 2022, Evergrande’s default set off a chain reaction in the housing market that brought down dozens of other developers, including Sunac China, one of the three largest private-sector players.

Investors and banks pulled back, and a crisis of confidence began to spread across the market. Early in the year, Country Garden was one of a small number of property companies that was still able to sell U.S. dollar debt.

It said its financial position was strong, and expressed confidence that it could withstand the downturn. As the country’s property slump deepened, Chinese authorities in the middle of last year gave a boost to Country Garden and a few other privately run developers by helping them secure funding and backstopping their domestic bond sales.

By autumn investors had turned bearish again, and Country Garden’s bonds plunged to deeply distressed levels. Country Garden and its units began to shed assets to raise cash, including selling shares in a mall in the city of Guangzhou to a restaurant chain famous for pickled fish dishes and selling its stake in the famous Guangzhou Asian Games City, a popular housing complex built for the 2010 Asian Games, to a state-owned developer.

In late 2022, China came up with a new 16-point plan to resuscitate the housing market. State-owned banks made commitments to supply ample credit to a group of “model developers,” including Country Garden. Investors bid up its bond and stock prices, enabling the developer to raise money again in Hong Kong. The country’s reopening also gave nationwide housing sales a boost.

They rose for a few months earlier this year, making Country Garden executives optimistic that the worst was over. In April, Yang Huiyan, Country Garden’s chair, said in the developer’s annual report that she felt a “burden of responsibility” to steer the company through a transition in the property market from a rapid growth phase to a period of stabilization.

The developer resumed buying land in public auctions. It turned out to be poorly timed. Home sales began slumping again that same month, and have continued to decline. Investors dumped the company’s stocks and bonds.

Next steps

Last month, the developer told investors that there is uncertainty over its ability to continue as a going concern, but it isn’t giving up.

The company also said its priority is completing and delivering the homes it has presold. That could help free up cash currently locked in escrow accounts, enabling the money to be used to pay down debt.

Meanwhile, in mid-August, China Evergrande filed for chapter 15 bankruptcy in New York, edging closer to the finishing line of one of the world’s largest and most complicated debt restructurings.

Its shares resumed trading on Aug. 28 after being suspended since March 2022. They crashed 79% that day. Chinese authorities have recently made it easier for people to buy homes in another attempt to boost sales.

They broadened the definition of first-time home buyers, a category that comes with extra perks and subsidies, and lowered down-payment ratios on people’s first and second home purchases. That has brought potential home buyers back to property showrooms in Beijing, Shanghai and other top-tier cities.

“At the end of this cycle, sales in big cities will stabilize and even rebound, but the best-case scenario for many small and medium-size cities is that their property sales don’t deteriorate more,” said Ting Lu, Nomura’s chief China economist.

Even if Country Garden avoids defaulting, it will have to be significantly downsized, said Yao Yu, the founder of YY Rating, a Chinese credit research firm. He said that further sales declines are unavoidable. “The era of China’s giant privately run developers is over,” he said.

Source: Wall Street Journal

Yes, you've locked the door: What drives your checking habit?

Most of us have suddenly thought, “Wait — did I actually lock the door?” For some people, this might lead to locking up with more intention next time. But for others, it may be an anxiety disorder. Researchers say it’s all about being afraid of losing control.

I once had a neighbor who checked the door of his flat a dozen times before leaving for work and walked round and round his car as many times when he arrived back home, to make completely sure that everything was right.

I often imagined the terror he must live with all the time, going through imaginary scenarios of break-ins or the car ignition being left on.

This particular case may have been an instance of obsessive-compulsive disorder (OCD), which is a type of anxiety disorder characterized by an uncontrollable checking behavior and recurring, bothersome thoughts.

However, many of us are exposed to sudden bursts of uncertainty. Did we switch off the gas before leaving for our holiday? Worse still, did we leave one of the children behind?

Absent-mindedness and the rush of getting to wherever we need to go can result in these lapses of memory and the sudden shock when we realize that we’re not sure if we did everything we should have.

New research from Concordia University in Montreal, Canada, has suggested that such a fear of losing control can result in recurrent checking behavior. This, say the researchers, may be at the core of many anxiety disorders, including OCD.

“We’ve shown that people who believe they’re going to lose control are significantly more likely to exhibit checking behavior with greater frequency,” says study co-author Adam Radomsky.

The scientists hope that the new findings allow them to find better ways of treating OCD and other anxiety disorders at their core.

“[W]hen we treat OCD in the clinic,” Radomsky explains, “we can try to reduce [the patients’] beliefs about losing control and that should reduce their symptoms.” The researchers’ findings were recently published in the Journal of Obsessive-Compulsive and Related Disorders.

Lose your fear of losing control

Radomsky and paper co-author Jean-Philippe Gagné, a Ph.D. student, worked with 133 participants recruited from among the undergraduate student cohort.

“[Those] who participated were given bogus [electroencephalograms],” which is a method that is designed to measure electrical activity in the brain, Radomsky explains. “They were randomly assigned false feedback that they were either at low or high risk of losing control over their thoughts and actions,” he adds.

Once they had convinced the students that they were either in complete control or at risk of losing control, the scientists asked them to complete a computer task that required them “to control the pace of pictures” by making them disappear before they faded from the screen on their own.

What the participants weren’t made aware of, however, was that they had no actual control over the images, which were programmed to float in and out of sight at specific paces.

The participants were instructed to use various key combinations to control the images, and press the space bar to confirm their command.

Radomsky and Gagné found that the participants who were convinced that they were at higher risk of losing control of their actions engaged in more meticulous checking behavior than their counterparts, who were told that they were likely to maintain control.

‘Potential to improve’ anxiety therapy

What the team found most surprising was that none of the study participants identified as having OCD. This, the scientists think, is an indication that a fear of losing control stands at the core of many anxiety disorder symptoms.

The findings verified the researchers’ initial working hypothesis, “[T]hat people’s fears and beliefs about losing control may put them at risk for a range of problems, including panic disorder, social phobia, OCD, post-traumatic stress disorder, generalized anxiety disorder, and others.”

Knowing that at the bottom of excessive checking behavior lies the worry of losing control over the situation may pave the way to more appropriate cognitive behavioral therapy for the treatment of a range of anxiety disorders, the researchers say.

Source: Medical News Today

Air conditioning: the benefits, problems and alternatives

Amid record-breaking heat, increased access to air conditioning could save lives – but AC units are damaging the environment. Are there other options?

Much of the Earth sweltered under record-topping temperatures this month. Phoenix, Arizona, broke its record for most 110F (43.3C) days. California’s Death Valley had its highest temperature ever. An airport in coastal Iran saw a heat index of 152F, while Beijing saw a record stretch of 95F days.

Oppressive heatwaves have become more frequent and more severe as a result of the climate crisis – a trend that’s expected to continue, and could worsen in proportion to how quickly we can transition from fossil fuels.

To beat the heat, people are increasingly turning to air conditioning. The number of AC units globally could increase by 244% by 2050, according to the International Energy Agency, and demand could rise by 59% within the US, according to a 2020 analysis by independent research group Climate Central.

Increased access to air conditioning could save lives; after all, in the US, extreme heat is the single deadliest form of extreme weather. But it could also come with drawbacks.

Below we look at the challenges today and in the years ahead, and consider some of the alternatives.

Billions of people don’t have access, and the energy costs are huge

The technology can be expensive to purchase and run, often rendering it inaccessible to poor communities in the US and globally. In the US, research shows lower-income households are much more likely to lack access to the technologies. And one 2019 study found that between 1.8 and 4.1 billion people in developing countries who regularly experience dangerously high temperatures lack access to cooling technology.

“In much of the world, in many countries, we’re concerned that people who most need air conditioning don’t have it,” said said Narasimha Rao, a professor of energy systems at Yale University who co-authored the paper.

AC usage also puts pressure on electricity grids. That can be risky: if a five-day heat wave and a power outage hit the city of Phoenix at the same time, more than 50% of the city’s current population of 1.4 million could end up in the emergency room, one recent study found.

Many are working to make air conditioners more affordable and to improve the reliability of electricity grids. Yet there is another problem: air conditioners warm the Earth.

The appliances use a lot of energy. Between now and 2050, cooling technologies including AC units are projected to be the biggest contributor to growing energy demand, according to the Intergovernmental Energy Agency – a problem, since most global energy currently comes from fossil fuels. The US broke its summer record for daily gas consumption on at least two separate occasions, data from S&P Global Commodity Insights shows, and AC usage is a key contributor.

Most AC models also require the use of planet-heating chemicals to cool the air. The most commonly used refrigerants in ACs are hydrofluorocarbons (HFCs) are potent greenhouse gases – thousands of times more effective at trapping heat than carbon dioxide.

Some air conditioners do use the more climate-friendly refrigerants hydrofluoroolefins (HFOs), though these can still create ecological damage. Other alternatives include ammonia and propane, but both can be harmful to humans when they leak.

Companies are now also using newer kinds of refrigerants, like R-32, which is an HFC that is half as planet-warming as older ones traditionally used for air conditioning.

And experts say that by employing other strategies to lower temperatures in homes, we can lessen the environmental toll of air conditioning, allowing people to stay cool without warming the planet.

There are more energy-saving cooling technologies

One of the buzziest air conditioning technologies are electric heat pumps, which can both heat and cool homes. On hot days, the appliances pump hot air out of the home and draw cool air in.

These technologies are far more energy efficient than traditional air conditioners. They also require far less refrigerant to work.

Traditional ACs and heat pumps both cool homes by directly lowering air temperature and also by pulling moisture out of the air, which can make a home more comfortable. But combining the two processes makes the appliances “terribly inefficient”, said Les Norford, professor of building technology in the Department of Architecture at MIT.

Norford and others are working to develop new technologies that separate the two functions to boost efficiency. Some models use living membranes or physical desiccants – materials that suck up humidity – instead of energy-powered processes to pull moisture from the air.

Improving the energy efficiency of air conditioners is crucial. According to the International Energy Agency, in 2018, the average air was less than half as efficient as the best available technology. And the least efficient models – often found in low-income households – require even more power to run, rendering them both more climate-warming and expensive.

More options for cooling

Other common technologies can play a major role in cooling homes. Fans, for instance, are much cheaper and far less energy consuming than ACs, said Rao, the Yale professor. They can also be surprisingly effective, especially in hot, dry environments.

“In some cases they can provide up to 2C of relief,” he said.

Rao is also studying the potential for dehumidifiers to be used as a widespread cooling technology, as they can also greatly improve comfort in hot and muggy areas.

“In Mumbai, where I’m from, you can have tremendous relief from drying the air,” he said. “In my house it’s pretty hot and humid, but I go to the basement which has no air conditioning, just dehumidification, and it’s still so much cooler.”

In hot and dry heat, another useful low-energy technology is the air cooler, also known as the swamp cooler. These devices use a fan to recirculate air across a cool, wet material and then disperse the freshly dampened, cool air into the home. Like dehumidifiers and fans, swamp coolers are cost and energy efficient, and are also widely available.

But there are low-tech ways to keep homes cool, too

Buildings can be better designed to keep temperatures down.

One crucial strategy is weatherization, said Vivek Shandas, a geography professor at Portland State University who studies the impacts of climate change in urban areas.

“We’re often throwing AC at homes – especially older homes, homes where lower-income communities of color live – without doing any weatherization like insulating or sealing up the cracks the windows and the doors where that outside extreme heat can come in,” he said. As a result, residents can end up being forced to crank the ACs to their highest settings to keep indoor temperatures down.

Weatherization, said Shandas, would reduce the amount of AC required to maintain a comfortable setting, resulting in lower energy bills and greenhouse gas emissions.

Some homes are also built with highly heat-absorbing materials. Residents of mobile homes and trailers, which are often made with steel or aluminum, are often most vulnerable to extreme heat, said Shandas.

In south Asia and other parts of the global south, said Rao, metal roofs – often found on slums – are common because they are inexpensive.

“An aluminum sheet for a roof is the worst thing you can do from a heat perspective,” he said.

But some materials used to make homes, such as brick and stone, can absorb and release heat more slowly. Improving the availability and affordability of such materials could save lives in the extreme heat.

Homes – especially roofs – can also be painted white to lower indoor temperatures. White roofs products stay coolest under the sun’s rays because they reflecting away between 60 and 90% of sunlight, according to the Department of Energy. And buildings can be designed with ventilation in mind to lower temperatures. Wind towers, for instance, can be built to draw cool breeze indoors; placing ponds of water underneath them can make the structures even more effective.

What about shade?

Shade can make a big difference within the home and outside of it. The simple act of drawing opaque curtains closed, for instance, can help push down indoor temperatures, said Shandas. Communities can employ that same strategy by planting trees throughout neighborhoods.

“We know that treed neighborhoods can be up to 15 degrees cooler than ones with no trees,” said Shandas.

Trees and other plant life can also be installed on rooftops to help insulate buildings from hot air outside. These strategies are especially useful in urban “heat islands” where abundant concrete draws in thermal energy – areas which are disproportionately occupied by low-income people of color, Shandas added.

Can we get rid of AC?

Experts say a world eliminating AC would be dangerous.

“There are some parts of the world where really, you cannot do without air conditioning, where you have really muggy weather throughout the year,” said Rao.

But strategically using other methods to cool down communities could cut costs and emissions. It could also cut down on a knock-on effect of air conditioning: in highly dense areas, running them can raise outdoor temperatures by 1C (1.8F).

Different strategies will work best in different contexts, said Shandas. And in some cases, several should be applied at once.

“We are not in a position as a species to necessarily think that we are going to be able to find that silver bullet out of this extreme heat,” said Shandas. “We need to be finding the myriad different effective solutions that are socially and politically palatable, and that are sustainable in the long run.”

Source: The Guardian