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Last week's news that one of the largest real estate companies was having huge difficulties caused almost the whole world to fear the outbreak of the devastating scenario we witnessed in 2008.
The situation in the real-estate giant Evergrande has shed light on some of the reasons why the crash happened, while the emphasis placed on systems that do not necessarily have to be opposed but are built on opposite fundamentals, caused the mistakes that others make seem even more worrying than what is happening in China.
The erroneousness of the assumptions generated from the expectation that everyone will forever have the same problems within a system in which speculation puts real economic trends in the background has emerged.
In the most recent example, this was not the case precisely because the importance of real estate in the Chinese economy is almost equal to the importance of investment, expressed accurately through their share of GDP.
A system that always seems confusing from the aspect of any European economy also consists of local governments whose total indebtedness reaches thousands of billions, so the sale of real estate is one of the most reliable ways to accumulate debt repayments, which is why any radical change is a huge risk.
These are relations to a special form of lending to the economy in a system based on the monetization of land resources through increasing property prices. The value of assets created in this way through the emergence of credit impulse, which is used to finance loans, grows with a specific dynamic that does not coincide with the dynamics of growth of flows that overlap this value.
In this way, the price of the property is increased to ensure solvency, but in the end, through this series of activities, it created nothing else but a Ponzi scheme.
Not only Evergrande was not the trigger of the new global financial crisis, but their example delivered a lesson from the future to the rest of the world
The system turns out to be unsound at the moment of losing the proportionality of financial and economic effect on one hand, as well as the effects of supply on the other. This is another limitation of stimulated systems, driven by borrowing, which creates the problem of excessive support and bad loan, which counteracts the lack of solvency.
The difficulties related to Evergrande chronologically coincided with the change in the attitude of the state and the government towards the control of what was called the disorderly expansion of capital against large technological groups, the real estate industry, and other sectors.
After the Chinese authorities insisted on increasing real-estate taxes and fading the very strong role of intermediaries in trade, the system took the first step in abandoning the destructive practice that made real estate meaningless for years and made it a speculative tool instead of a place to live.
Probably, the ownership structure in Evergrande's facilities would show that only a small part of buyers choose to live in those apartments compared to the number of those who buy such real estate as a status symbol or resell it at a higher price in the future.
This approach has broader implications than purely economic ones, no matter which country was in question, and this case is just an example of a country that built rivalry with the United States by taking certain principles from their awareness of growth, but also knew how to send a signal that it used those principles, but not followed.
The push that was done to make this happen is an important signal for all other markets in which the characteristics of gambling applied to the management of apartments, land, and numerous elements from the luxury segment that most likely no one could ever use.
Not only Evergrande was not the trigger of the new global financial crisis, but their example delivered a lesson from the future to the rest of the world – one that addresses the world in which there are no overvalued assets that do not serve a purpose.
