Regional bank confiscation and real estate disaster: the economic crisis China is trying to hide

Despite the Chinese dictatorship trying to hide it, the country is experiencing a serious economic and banking crisis. There is a strong conflict involving regional banks, with confiscated money and tanks at the doors of the branches, to prevent the entry of protesters who have been asking for three months to withdraw their savings from their accounts. At the same time, China is experiencing an unprecedented real estate crisis, which reinforces the instability arising from the Covid pandemic 19.

This situation makes the country, which had a GDP growth of 8.1% in 2021, has a forecast of a timid growth of only 3% in 2022. Despite still being a positive percentage, the deceleration of the Chinese economy should, for example, reduce Brazilian exports, because it affects the internal dynamics and reduces Chinese investments abroad.

“It’s as if this bicycle is not only stationary, but starts to go backwards”, explains Igor Lucena, economist and doctor in Relations international. “This, today, is the greatest global geoeconomic risk that exists”, he adds.

Tanks in banks and blocked deposits

The Chinese government is deploying tanks to protect bank branches from protesters outraged by the blockade of deposits. According to videos and reports posted on Twitter, the measure was adopted in Henan province, where protests by account holders in the city of Zhengzhou were violently repressed last week.

Account holders at four regional banks allege that their savings have been blocked since April. These amounts are being transferred to “investment products”, according to Chinese authorities.

Censorship makes it difficult to interpret what leads to this situation in the country. “Apparently, several regional banks are involved in fraud operations and have made the liquidity of these banks very low. So they are not able to honor these deposits”, points out Lucena.

It is not yet known, however, whether this is a case of a pyramid scheme or corruption. In late June, Chinese police announced mass arrests: “The case involves old crimes, multiple suspects and a complex scenario,” the Henan police statement said.

“What is frightening is that the Central Bank has not intervened yet,” commented Dan Wang, chief economist at Hong Kong Bank Hang Seng, to the newspaper Le Monde. “There is a high risk of contagion if people get scared and seek to withdraw money. Nine banks have already been affected. The banking system is very sensitive to this kind of sentiment”, warned the economist.

To stop the demonstrations of account holders, the Chinese government would still have manipulated the population identification platform, marking them as if they had tested positive for Covid- or been in contact with infected persons. 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.

Real estate crisis

At the same time, a serious real estate crisis compromises the sector that represents more than 25% of the country’s economy, involving Chinese subnational entities, construction companies and investment vehicles.

Last week, China urged banks to grant more credit to developers who are struggling due to the growing number of homeowners who refuse to pay the monthly fees for late works.

Pre-sales on the floor plan 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.

At least a hundred real estate developments in China are not receiving monthly fees, according to industry data and analysts. This monthly strike raises fears of a risk of contagion to the financial system from this housing crisis.

To reduce the sector’s indebtedness, Beijing reduced the conditions of access to credit for contractors. Many groups, therefore, find themselves without money, among them the number one in the sector, Evergrande, which has a billion dollar debt (US$ 65 billion, R$1,65 trillion at current conversion). The company stopped paying its bonds in dollars last year and does not hide the possibility of defaulting.

The real estate sector was one of the pillars of growth in China, especially through regional banks . It was also one of the financial security bets of the world’s second largest economy in the face of the Covid crisis 19. However, this disastrous scenario compromises the economy of the country and the world.

In January, the International Monetary Fund (IMF) warned about the risk of “contagion of the Chinese housing crisis to the economy and world markets.” “A sharper-than-expected slowdown in the real estate sector could have a wide range of negative effects on global demand,” the agency noted in a report sent to China earlier this year. is unknown, due to the lack of transparency of the Xi Jinping dictatorship.

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