China』s Economy Is Facing a Major Crisis
With the recent economic downturn in the U.S. and Europe,
everyone is worried that the global economy will slip back into a recession.
In China, many entrepreneurs have just 『walked away,』
after defaulting on their loans, causing a chain-reaction all across China.
Real estate has become a veritable “landmine”.
Analysts see this as an ominous sign that the Chinese economy
is close to collapse.
Two world famous economic commentators,
Nouriel Roubini and Jim Chanos,
have adopted a pessimistic stance on the Chinese economy,
saying it is in for a hard landing.
According to The Financial Times, in the past 2 to 3 months,
investors are in a rather gloomy mood over the Chinese economy, as they watch a crisis emerging.
Reports indicate that from real estate to manufacturing,
almost all areas in mainland China are suffering from
a loan-default chain reaction, including banks,
government』s financing schemes, investment companies and joint-stock banks.
Whether its state-owned or private, whether its a rail investment
or an expansion of some other industry,
whether it is located in Wenzhou or Ordos...
all are facing the risk of this chain reaction.
Wenzhou city is said to be the weathervane of
But in August and September alone, more than 40 cases
were reported of entrepreneurs 『skipping town』 after being unable to repay their loans.
Statistics show that the size of Wenzhou』s private lending market,
which is nearly RMB 11 billion (US$1.72 billion), increased nearly 40 percent over the same period, last year.
Professor Xie Tian of the University of South Carolina,
believes that as China tightens its monetary policy,
small and medium private enterprises
will be impacted the most.
Xie Tian: “When they are tight on cash flow.
China』s exports are down, due to a downturn in the global economy,
thus, business owners are unable to get loans from
Therefore, they have to borrow money from
private lending companies.
As more and more businesses do this, loan rates will rise.
Even though these business owners know that
they won』t be able to repay their loans,
they nevertheless take the risk and
borrow money from these loan-sharking companies.
It shows that the Chinese economy is
in seriosus financisal danger.”
German Welt thinks that not only is the private lending
market in China facing a capital chain reaction,
but also state-owned commercial banks and joint-stock banks,
especially when they』re saddled with many bad loans.
According to the Chinese Communist Party (CCP),
local goverenment debt is averaging about RMB 1.07 billion,
or (US$167.62 million), 40% of which is due this year.
Many local governments are unable to repay their debt,
which is leading to huge loan defaults.
Alongside the capital chain reaction, is the real estate market,
which is another risky side of the economy.
China's central commercial bank clearing center director,
Wang Shihao, admitted in September that RMB 20 trillion
(US$3.13 trillion) in outsatnding real estate loans,
has been a “landmine” to the Chinese banking industry.
Wang said, “The total amount of outstanding bank loans
is RMB 55 trillion (US$8.61 trillion), 36% of which is real estate.
Developers must get their money from somewhere else,
thus, the low-interest loans era has ended.
Statistics show that in 16 of 70 mainland cities,
the price of new apartments in August is lower than in July.
Although banks claim that they can bear with real estate prices
falling around 40%,
the trend of people back off their property purchases
in Shanghai and Nanjing, shows that more and more people see the real estate market as bearish.
People are taking their money out of real estate
to fill the capital hole they have in other investments.
Professor Xie Tian now thinks that real estate developers
have a lot of apartments that they are finding hard to sell.
In other words, the supply is larger than the demand.
Empty communities can be seen in many places.
Real estate developers』 cash flow is not very good,
and the pressure they feel in repaying their loans is growing.
Xie Tian: “The capital chain reaction is right around the corner.
Once it』s triggered in the private lending sector
and among state-owned banks, the real estate market will be affected.
When this happens, China』s financial bubble will pop.”
Meanwhile, a shortage of cash is affecting
big government projects.
First Financial Daily reported that railway construction workers
aren』t being paid on time, because these companies are short on cash.
There are currently over 10,000 KM (6,213 miles)
of suspended railway projects in the country.
Deputy chief engineer of China Railway Tunnel Group,
Wang Mengshu, has admitted: "From the northeast
to the southwest, from the northwest to the southeast,
most of the current railway projects have stopped."
The Financial Times Deutschland says, “The CCP has lost control
of the issuance of debt and the interest rate on loans,
due to underground lending institutes which provide
more loans than banks.
Not only does the CCP lack the ability to save Europe,
it itself is struggling with its own financial problems and development.
NTD reporters Chang Chun, Li Mingfei and Ge Lei