What is going on with China’s Banking Crisis?

by Orange_Overlord

The problem is pretty deep but to make it short China rural area is experiencing a “bank run” crisis due to bad investment. The government step in to suppress the the riot as people running out of money due to not able to get any income and unable to withdraw money.

The basis of banking is that they take your deposit and use them to give out loans to businesses. China limit the bank exposure by only permitting the banks to have locals as customers. However, to give out large loans the banks need larger customer base so they move their business online to attract more people outside their area. This drastically increase their deposit as well as the pool of money they can loan out beyond their original business.

You can trace the problem all the way back to China real estate bubble. The majority of “investment” china involves some sort of real estate. As soon as the government allow for pre-sale of houses before they are built, the real estate companies team up with the banks and local governments to sell the housing projects.

The people are promised a house at some point in the future if they make a down payment now and get a mortgage from the bank. The bank release the money without checking the progress and the local government rubber stamp the paperwork so the developers can use that money to start another project without finish paying for the current one.

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As the time arrives, the houses don’t get built and people have to keep paying mortgage for nothing plus rent, they couldn’t take it anymore and stopping their payments and demand their house as promised before they pay.

The issue balloon as the central government stamp down on over leveraged real estate developers and people realize their chances of getting a complete house is going up in bubbles. They stop paying their mortgage. Then real estate companies began to default on their debts. Combine with Covid-19 and global economy, the banks’ investment incomes are coming to a halt.

Several of the loans become insolvent so they banks don’t get any money back. As people start taking out their savings to supplement their income, the banks run out of money.

Some say this could be the beginning of a much larger real estate bubble crisis as the situation snow ball into larger banks in the cities. The central government is attempting to suppress the issue by blocking information. Banning people from leaving their homes by turning their health status to yellow (it just means they can only take Covid tests and not go anywhere) and now they are suppressing the riots.



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