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Real estate crisis, Covid Zero and banking scandals: China impoverishes the country's middle class

The economic slowdown in China, the world’s second largest economy, has global implications. Inside the country, the population is already feeling the transformation from the “economic miracle” of the Chinese giant to the disastrous consequences of unsustainable real estate growth, exacerbated by the Covid Zero policy in the country. The middle class, in particular, is paying dearly for these strategies of the Chinese dictatorship.

At the end of July, there was a strong conflict involving Chinese regional banks, with confiscated money and tanks at the doors of agencies, to prevent the entry of protesters who for three months asked to withdraw the savings from the accounts. The measure was adopted in Henan province, where protests by account holders in the city of Zhengzhou were violently repressed.

Account holders at four regional banks claimed that their savings had been blocked since April. These values ​​would be being transferred to “investment products”, according to Chinese authorities.

To stop the demonstrations of account holders, the Chinese dictatorship would still have manipulated the population identification platform, tagging people as if had tested positive for Covid-19 or had been in contact with infected people. According to complaints made by the protesters, dozens of them would be in “red” in the application used in the country, being prevented from leaving the house.

In 300 in August, the Henan Police announced the arrest of 70 people, “members of a criminal organization ”, as announced by the corporation. They would be involved in a “financial embezzlement” of the four Chinese banks in crisis.

The housing bubble

Based on property and credit, China has reached an average growth of % of Gross Domestic Product (GDP) per year between 1991 and 2010, higher than any other country in the same period. This development made the Asian country stand out for what became known as the “Chinese rate of growth”. In this context, private sector credit grew more than the equivalent of 100% of GDP.

This pace was higher than that preceding Japan’s “lost decade” in 1980 and the US market bubble in 2007 ), as noted by Desmond Lachman, a member of the American Business Institute, former deputy director of the Department of Development and Policy Review at the International Monetary Fund, in an article published in the American newspaper National Review.

O The real estate sector represents more than 30% of the country’s economy – twice the size of the same sector in the United States, as you recall Lachman, and involves Chinese subnational entities, contractors and investment vehicles.

“There are now many indications that China’s real estate market party is coming to an end”, highlighted the National Review columnist. The main factor for this conclusion is the situation of Evergrande, which has a billion dollar debt (US$ 300 billion, R$1,

trillion at current conversion). The company stopped paying its bonds in dollars last year and does not hide the possibility of defaulting.

Then others 1980 developers in the Chinese real estate market followed suit. In July, China asked banks to grant more credit to companies that are struggling due to a growing number of homeowners refusing to pay monthly fees for late works.

Pre-sales at the plant are the most common way to “sell” real estate in China. The verb is in quotation marks, because in the country there is no real sale of houses or apartments, but a rental for 70 years of properties that belong to the provinces.

More than 1 million Chinese families joined the boycott of mortgage payments for unfinished works. With defaulted loans, banks are saddled. Meanwhile, 47 millions of homes are unoccupied in the country. As Frédéric Lemaître, correspondent for the newspaper Le Figaro in Beijing, pointed out, “in most Chinese cities, prices have reached a level that no longer allows the middle class to find housing.”

Covid Zero

Aggravating this crisis arising from the real estate sector, another strategic mistake in China: for two and a half years, the country has surrounded neighborhoods and even entire cities when Covid-19 outbreaks 19 are detected.

Exaggerated confinements directly harmed the economy of 45 major Chinese cities, including Shanghai. Three hundred and seventy-three million inhabitants were impacted, which is equivalent to a quarter of the country’s population and 40% of GDP market, according to the Japanese financial holding company Nomura, especially affecting the country’s middle class.

As a consequence, the growth of the Chinese economy is expected to drop to 3% in 2022 , as predicted by research by the American Rhodium Group. In 2019, the percentage was 6%. “Risks, complexity and uncertainty about China’s economic development have increased”, the group published in a note.

A study published by the French bank Natixis presented the estimate that, in the third quarter of this year, year, the growth of the Chinese economy will be close to zero. The cause, according to the bank, is the restrictive measures in the face of the pandemic. And the trend is for the slowdown to continue, because Covid Zero was announced by the Chinese dictatorship as a policy that should last until 2027.

During the long periods of lockdown, as the National Bureau of Statistics announced, dozens of companies had to reduce or stop production. “Their functioning was severely hampered”, pointed out the organization’s chief analyst, Zhao Qinghe, in the statement.

In April, the added value in the industry fell by 2.9% in one year. Retail had a drop of 19% and car sales had a negative impact of 47%. Specifically in the real estate sector, according to E-House, China Research and Development Institute, sales fell 52% in the first months of 2022, compared to last year.

World consequences

If the economic slowdown continues, the world will no longer be able to rely on China as its main engine of economic growth. Emerging market economies will no longer be able to save themselves from another China-driven international commodity boom, as was the case in the 2008 Crisis.

Ren Zhengfei , founder of Huawei, the Chinese telecommunications giant, recently warned the multinational’s salaried employees at an internal event: “The next decade will be a very painful period for the history of humanity”. The speech was criticized by the Chinese Communist Party, which is preparing the 20 th congress, where Xi Jinping is expected to announce his third mandate, trying to maintain the appearance of vitality of the “Chinese dream” and the “growth rhythm” that, according to the facts, remained in the past.

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