Winning Bizness Desk
Mumbai. China's development in the last two decades surprised the whole world. The double digit growth in GDP year after year was a dream for any country, which China made possible. But the signs that are being received show that everything is not going well in China. June is the 10th consecutive month that property prices in China have fallen. China is facing a severe shortage of coal and this has led to a severe power shortage in the country. Not only this, the banking system of the country has also started faltering. Many small banks have become defaulters. Growth in China's GDP has also stagnated.
Real crisis in real estate
According to a report, the mess in China's real estate sector began last year, when the government enacted three rules, known as the 'Three Red Lines', to reduce the debt dependence of real estate companies. China's largest real estate company Evergrande failed the test of these rules. As a result, Evergrande found it difficult to raise more debt. Evergrande has more than 1,300 projects spread across 280 cities in China. The company's total assets are 2 trillion yuan, which is 2% of China's total GDP. The number of customers of Evergrande is currently 1.5 million, whose money is stuck. Customers of more than 100 projects in about 50 cities have stopped payment and are asking for their money. The company has liabilities of over $300 billion and has already started defaulting on several bond payments.
If Evergrande sinks, the real estate sector will collapse
The share of the real estate sector in China's GDP is 12%. Therefore, if Evergrande goes bankrupt, it will have an impact on the entire Chinese economy. This will reduce the demand from cement, steel, sanitary ware and many other industries. At present, the situation is that home sales have declined for the 12th consecutive month, which is the longest slowdown in the private property market since 1990.
Power crisis also gripping
China is suffering badly from the shortage of coal and as a result, the industrial areas of China are going out of power for hours. China's manufacturing sector has been badly affected by the power outage. China takes raw materials for its manufacturing from many countries of the world and if Chinese industries cut production then it will affect the supply chain of the whole world.
Banking system not getting govt support
In April this year, several small banks in China's Henan province failed, with assets (everything) of $6 billion and nearly 400,000 customers. According to the rules of the Chinese regulator, there is a sovereign guarantee of 5 lakh yuan to the customers there on the amount deposited in any bank. But instead of returning the money, the Chinese authorities have made every effort to silence these customers. People protesting in the capital of Henan were even attacked.
Poor risk management
Mismanagement, corruption, weak regulation and poor risk management are present in about 4,000 more small and medium-sized banks operating in China's rural and urban areas, with combined assets of $14 trillion. If these banks start going bankrupt, then there will be a terrible economic chaos in China. Since 2009, the strategy of growth based on debt has been implemented in China. For this reason, today the Chinese banking system is sitting on a debt-GDP ratio of 264%.
