Chinese government-controlled financial institutions are saddled with $8 trillion in debt amid a falling property market, threatening to pose a serious threat to the Chinese economy.
Bonds issued by Local Government Financial Institutions (LGFVs) are at risk of default as a result of the continued decline in the real estate sector, requiring the government to bail out the entity.
Yating Xu Principal Economist at S&P Global Market Intelligence said: business insider.
What is LGFV and why is it important?
The past few years have driven an unprecedented real estate boom in China. Their failure will have ramifications for the entire Chinese economy, which is facing headwinds from factors such as Xi Jinping’s zero-corona policy. The Chinese government used her LGFV to drive the real estate market in the post-financial crisis period.
By 2020, Beijing has shut off gas, cooling its overheated property market. This has hit LGVV hard and local government lenders are fighting to survive as the Covid-19 pandemic worsens the real estate crisis.
The real estate market is unlikely to recover in the near future. Consumer sentiment is deteriorating, sales are declining, and prices are stagnant or falling.Recent central bank survey 73% of Chinese households indicated that they believe property prices will stay the same or fall in the near future. bloomberg news.
The real estate market is a very important segment of the Chinese economy, accounting for about 25% of domestic output and about 40% of household wealth. When the bubble bursts, the Chinese economy will witness unprecedented turbulence.
20% of developers are more likely to fail
Bloomberg reported last week that an IMF analysis found that 45% of China’s property developers were unable to repay their debts with their earnings, and 20% of them would be unable to pay their debts if their inventory values were adjusted based on current market prices. I added that it showed a high probability of failure.
This is not a happy scenario for Xi Jinping, who is to be given a landmark third consecutive term as president.
The impact on customers is getting worse. Falling prices are ruining savings, while new homebuyers face unwarranted delays. Project delays and incompleteness forced people to stage protests.
Challenge to Xi Jinping
Beijing is fighting fires. The central government has allowed 20 cities to lower mortgage rates, and financial regulators have asked state-owned banks to provide her 600 billion yuan loans. The central government has also offered tax breaks for people buying new homes if they buy within a year of the sale.
but, Analysts do not see a quick recoveryMorgan Stanley analysts said in a report last week, “The government’s measures are aimed not at stimulating the housing market but at preventing real estate market difficulties from spilling over to the broader economy.
https://www.ibtimes.sg/china-property-financing-vehicles-run-8-trillion-debt-stare-default-67330 China’s property lending vehicles pile up $8 trillion in debt, face default