China Collapse Economic - It is not surprising that China is currently facing a financial crisis, with more to come as problems emerge in the real estate sector of the financial system. A historic credit crunch that fueled China's growth over the past decade is now faltering, slowing the economy. Failures in many asset classes, along with failures in banks and other financial institutions, have raised new questions among investors and investors about when Beijing intervened forcefully.
The loss of credibility has consequences, as Beijing's long experience in responding to financial crises is now the first line of defense against crises. When government vehicles start defaulting on their bonds, Beijing must manage the crisis, likely using the central bank's balance sheet.
China Collapse Economic
It's hard to overstate China's economic woes in 2022. Even at the start of the year, discussions focused on the strength of a possible recovery and which sectors could lead that recovery... Instead, the lockouts eroded that dollar as the economy shrank in the second quarter at an annual rate of more than 10 percent, with just 0.4 percent annualized real GDP growth. Official growth targets have now been abandoned. Recent data has shown weak credit demand, with private sector companies holding back future investment. New lockdowns in major cities such as Chengdu, as well as national trials ahead of the holiday, have weakened the economy in early autumn. Families have been hit hardest by the Covid-19 restrictions and the resulting uncertainty about work and income from the service sector, which has slowed consumption. Economic problems are also evident in many places - from banking protests in Henan to the growing number of women paying mortgages, as well as the accelerating indebtedness of developers.
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The real estate sector is definitely in the middle of the storm, as the sector represents 24 percent of China's GDP, the same amount of employment and 30-35 percent of total debt. Social media reports in mid-August indicated that local officials are pressuring their residents to buy property, even if they already own several homes. Property sales have fallen 31.4 percent so far in 2022, leaving developers unable to fill homes sold in 2020 and 2021. They are now waiting for financial support from Beijing to do so. The property sector will continue to slow growth in 2022, dampening any infrastructure boom, but Covid-19 restrictions have increased and deepened an inevitable shift in the economy.
But much of China's current negative situation – aside from the direct impact of Covid-19 restrictions – has been years in the making. The Credit and Credibility Report published in October 2018 underlined the importance of China's rising debt to China's growth over the past decade, and the importance of Beijing's record of difficulty managing financial problems to maintain stability and avoid crises. Beginning in late 2016, Beijing launched a fiscal policy campaign that showed that debt growth, averaging 18.1 percent from 2007 to 2016, was very rapid, and conditions in the financial system are unsustainable and need immediate correction. This effort has halved debt growth since 2017 by reducing the use of banks, which has cut off many borrowers and financial institutions. Grasping Shadows, a new project from the Rhodium Group and which will be released in early 2023, will better analyze the impact of Chinese sanctions on the Chinese economy and finances.
Note: The old TSF refers to the method used to calculate TSF growth before the PBOC data was revised in 2018 and 2019.
Beijing has delayed curbing debt growth because it will lead to defaults, as borrowers rely on running on loans instead of paying debts and profits when it affects the wall. One asset class after another has become unsafe for investment, starting with peer-to-peer lending networks in 2018 and continuing with bonds, state-owned local enterprises, trust companies, small business banks and real estate developers. In a very short time, China went from unimaginable defaults and losses on many financial products (until the end of 2017), to a situation where these losses have increased. , on the growth of the number of assets.
Chinese 1 Yuan Bill & Scattered Wooden Bricks. Collapse Of Chinese Renminbi Yuan, China Stock Market Fall, China Economic Collapse, China Debt Crisis Stock Photo
The loss of credibility behind Beijing's guaranteed assets was inevitable, and it is affecting the economy. Credit and Credibility argued that China's long-term financial stability depended on the credibility built by the government's continued support to prevent investors, banks and companies from failing, in the face of losses, rather than conditions such as the high level of Chinese investment or domestic investment. nature. his guilt. The attempt to get rid of market competition in 2015 was just one step in a series of smaller but similar crises over the past decade. At the same time, Beijing did not want to continue financing the financial programs that increased in the informal banking sector from 2012 to 2016, which began to create particular risks. As defaults on these bank loans piled up, Beijing began to back away from these guarantees.
As soon as investors suddenly discover that an asset they once thought was guaranteed safe, they will also begin to question the validity of similar guarantees in other asset classes deemed safe. Since the start of the bailout, investors have been disappointed by Beijing's continued openness to the outside world. Even today, with the increasing need in the real estate sector, investors are openly discussing what kind of crisis or economic and financial crisis it will require. Beijing is finally stepping in. corporate bonds, the banks themselves and individual mortgages, there are not many asset classes left that carry the promise of government support.
And as Beijing's government guarantees continue to deteriorate, it will affect borrower and investor confidence and slow credit growth, weakening investment growth and the economy in general. The factors that facilitated China's economic growth after the global financial crisis are now changing and the confusion between lenders and borrowers is spreading throughout the system.
The crash in China's real estate market is a prime example of this growing crisis. Assets have benefited the most from China's debt boom over the past decade. The rapid debt growth fed the environment of property prices, large construction projects, rising land prices and land revenue for local authorities, four increased economic growth, resulting in increased credit growth in the sector and higher real estate and real estate prices. The property is the asset that has not happened in the last twenty years, there was a general expectation that governments are dependent on the market and the increase in property prices, so they cannot allow it.
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But ultimately, the rise and fall of China's real estate market was linked to changes in credit standards. Chinese authorities have tried but failed to control the boom in the property sector amid rapid debt growth, and will succeed in containing the fall as the sector faces a huge debt crisis. The only surprise was why the credit-dependent sector continued to expand from 2017 to 2020, even after the bank's bankruptcy.
Real estate developers bought themselves a few years of growth starting in 2017 by replacing informal debt from the shadow financing system and credit where home buyers come, in the case of buying houses before they are built. Developers are currently experiencing a decline in real estate sales, and the decline is too great to be fully offset by monetary or credit policy. Total revenue for property developers peaked at 18.0 trillion yuan ($2.7 trillion) in June 2021, but has now fallen to only 13.2 trillion yuan in the last 12 months, a loss of 4.8 trillion yuan, or about 4.5 percent of. GDP. The credit crunch is on the rise, with many homebuyers threatening to default on their mortgages, making foreclosures even worse. Few want to buy houses before they're built. Sales of completed houses this year have not changed at all - only sales of houses before construction have decreased.
, China's system is most vulnerable to disruptions during reform efforts, such as Beijing's attempts to rein in the property sector, but not to sudden crises such as the Covid-19 pandemic. . China does not want to continue to rely on the real estate sector to generate economic growth - the tech giants in Beijing have been worried about the real estate boom for years and do not want to see it, the big king. As a result, no one can be sure how much economic trouble Beijing is willing to tolerate before the market bounces back. And that uncertainty could continue to spread financial ills from losses in the sector.
Nowhere is the concern from the real estate sector more evident than in public finances. The area has been hit by a decline in property sales to struggling developers, with those sales down 48 percent in area and 32 percent in terms of income this year, according to the Treasury. Government Funded Vehicles (LGFV)
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