China’s ailing property sector is dependent on surging amounts of debt that are unsustainable. With over 40 per cent of local government bonds maturing in the next five years, authorities face a debt squeeze which, even if overcome, will recur without serious reform.
Facing angry homebuyers and bank depositors, local authorities in China are looking to the central government to foot the bill, but Beijing wants them to take on more debt. The crisis points to a major weakness in Chinese banking and credit markets – the lack of real tests of collateral.
‘We are facing a bitter winter that we have never seen in the history of China housing,’ says CEO Mo Bin, as the country’s biggest home builder reports worst results since 2007.
Chinese banks are set to report 5 per cent year-on-year profit growth for the first half of 2022, as sustained loan growth to support infrastructure and companies is expected to offset weaker retail loan demand caused by Covid-19 lockdowns in the second quarter, analysts said.
Buyers are not impressed with the scant relief offered so far and remain determined not to pay for unfinished homes, leaving the property market and the wider financial system at risk, analysts say.