The avalanche may be starting. The collapse of a small Chinese bank exposes the system’s weaknesses

yes jaw There are signs that one of the banks has failed.The portal website People’s Daily published a report from the headquarters. Jiangxi Bank The institution’s clients expressed concern over reports of bankruptcy after the bank officially announced that profits could fall by 30% due to problems with loan repayments by customers.

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The Economist introduced the situation of China’s banking market. He pointed out that There are about 3,800 troubled banking institutions in ChinaTheir total assets are 55 trillion yuan ($7.5 trillion)or 13%. The country’s entire banking system. The weekly stressed that these banks have long been mismanaged and have accumulated a large number of bad loans.

“Many of them provided loans to developers and local governments, exposing themselves to the impact of the real estate crisis,” we read. The authors note that in recent years Some banks revealed that 40% of their portfolios consisted of nonperforming loans.

The scant information released about the bank’s problems could underscore the severity of the situation. A similar mechanism was observed with development companies. Initially, little was heard about the problems of these giants until authorities finally confirmed that problems existed across the industry.

The Economist notes that China’s main strategy for dealing with weak banks is to “absorb” them. Of the 40 institutions that have recently disappeared in this way, 36 were located in Liaoning Province and were taken over by another bank called Liaoning Rural Commercial Bank.

Sigma G, a cryptocurrency market analyst, also paid attention to the situation in China’s banking industry. He pointed out that The main reason for these problems is the deep recession in China’s real estate industry. Over-indebted developers and local governments defaulted on loans, leading to a wave of financial instability. Property prices plummeted and construction projects were suspended, putting further pressure on the financial system.

The author of this entry also draws attention to Hidden bad debt problemBanks have used asset management companies (AMCs) to get rid of bad loans and create a façade of stability. But the new banking regulator, the National Authority of Financial Regulation (NAFR), has begun cracking down on these practices, imposing fines and tightening supervision.

The author of the article predicts that the Chinese economy is entering a long-term false growth phase. Sina warned on the 21st: “Years of credit-led growth have finally ended, and the result will be a slowdown in China’s economic growth and a negative impact on the global economy.”

Experts predict that China’s economic slowdown will in turn exacerbate banking problems. He believes that this situation is likely to end with massive liquidity injections, stimulus to the economy and investors fleeing to hard assets.

The Economist cites estimates by Standard & Poor’s experts that it could take up to ten years to repair the Chinese banking system. However, official data may still not reflect the extent of the problem. In the report of the People’s Bank of China for 2023, we can see that there are 3,655 banks, accounting for 98.28% of assets. All assets deposited in Chinese banks are safe. The bank also confirmed that the risk applies to some small and medium-sized financial institutions operating in rural areas. “Large banks have received good ratings, which proves the stability of the financial system,” we read in the document.

Why do small banks have such big problems? Many cities and even entire regions in China are actually deeply in debt. The debt is so high that Representatives of local authorities sent special envoys to Beijing in the spring. They negotiated repayment terms for billions of dollars in loans. The unpaid debt has a growing impact on the local economy and threatens national growth.

The debts that Chinese cities are sinking into are first: The impact of the crisis on the real estate market. And the impact of the pandemic. Many construction projects in the past decade were financed through debt. Infrastructure development should have boosted local economic growth, but after the crisis caused by the COVID-19 pandemic, local governments lost the opportunity to invest further. At the same time, they still need to repay old debts.

Goldman Sachs estimates that China’s most important regions have $13 billion in debt. Some of this debt is public – bonds, for example. So a failure to repay it would hit the entire economy.