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Should the world worry about China ' s housing and banking crises ?
By Peter Frerichs and Adrien Henni
Peter Frerichs is an independent writer based in Los Angeles .
Adrien Henni is the founder of International Digital News , a tech news and research agency dedicated to the emerging tech scenes of Europe and Asia .
Not all is rosy in the Middle Kingdom . Since 2021 , its economy has been destabilized by two major crises , challenging the country ’ s development model and sparking concerns about potential impacts on the global economy .
As the country urbanised , Chinese growth had long leaned heavily on real estate . Investment in this sector exceeded 14 % of GDP in 2013 , according to official sources . Today , the country boasts one of the highest rates of homeownership ( exceeding 80 % of all urban households ) and multiple / second home ownership ( exceeding 20 %) in the world .
While the demand for homes in Chinese cities boomed over the past decades , early signs of a housing bubble began to percolate before the pandemic . Taking note , developers took out eye-popping amounts of debt to keep pace , eventually catching President Xi Jinping ' s attention .
THE UNRAVELING
In an attempt to ward off a housing crisis , Xi implemented regulations to deleverage the real estate industry . Banks were also constrained from making further loans to developers , all of which would seemingly mitigate the chances of a pending disaster .
But the sector began to unravel in August 2021 , when the country ’ s second-largest property developer , the Evergrande Group , promptly halted construction . The following month , the property giant missed two offshore bond coupon payments for a total of $ 131 million , and the crisis soon spread to fellow developers such as Fantasia Holdings , Kaisa Group , Country Garden , Modern Land , Sunac , and Sinic Holdings .
By November 2021 , the sheer size of the loans to property developers began taking their toll on Chinese banks . Combined with an overall economic slowdown , several mid-tier banks went under . This was expected , but it wasn ’ t until relatively recently , when 40 Chinese banks disappeared , that global markets began to take notice . Mismanaged Chinese banks lent heavily to real-estate developers ,
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WEJ | September 2024