[/table]China's Hidden Banking CrisisThe Chinese Banking sector is quietly collapsing, and information is getting shoved under the rug. Will the PBOC respond with a massive liquidity wave?
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JUL 10
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PREVIEW
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In the last few weeks, a staggering 40 Chinese banks have collapsed. Even at the peak of the American S&L crisis, lenders didn't vanish this quickly- and that was during a disinflationary recession started by the enigmatic Fed Chairman Paul Volcker and his massive interest rate hikes.
China's regulators have been steadily implementing reforms and consolidations for years. Since 2019, several mid-sized banks have collapsed, and powerful investment managers have fallen. However, the most complex issue lies with small, rural banks. There are about 3,800 of these institutions spread across the Chinese countryside, holding 55 trillion yuan ($7.5 trillion) in assets, which accounts for 13% of the total banking system. These banks have long been mismanaged, accumulating vast amounts of bad loans. As I’ve written about before, many of these banks have lent to real estate developers and local governments, exposing them to China’s property crisis. In recent years, some have disclosed that a shocking 40% of their books consist of non-performing loans.
The developers, eager to make a profit, sold unbuilt homes to naive investors, promising high quality apartments in bustling cities. However, due to poor risk management, corruption, and high levels of debt, these firms began collapsing in 2021, starting with Evergrande, but soon moving to Country Garden and others.
Property investment contracted by around 8% in value in 2023, mirroring the decline seen in 2022. Property transaction volumes fell by 23% year-over-year in December and by 18% over the entire year of 2023. The apparent recovery in housing starts observed in November, following a decline that lasted 31 consecutive months, proved to be short-lived. ...
