In China, a major financial crisis is unfolding. A few months ago, four rural lenders in the northern province of Henan froze the deposits of hundreds of thousands of customers and Chinese citizens in 86 cities are boycotting mortgage payments towards their homes. Confidence in the financial sector has plunged. In this video we look at the story behind the bank scandals.
Freezing deposits of around six billion dollars depositors worried at first but began to panic shareholder of the four banks had been arrested for “serious financial crimes.” to stop making mortgage payments on apartments while chinese media has portrayed these two to each other and driven by very specific symptoms of a much greater issue in the chinese financial system.
Then on may 21, a large demonstration was police stepped in to disperse the protestors, municipal authorities even changed the covid to the protests, preventing them from using this abuse of the public health systems led to outrage throughout china, causing the government glitch, but after an investigation, five local the protests didn’t end, and on july 10th of china
Turned violent as the peaceful protestors videos of the violence went viral, drawing there are a few interesting things about the henan banks that froze up in april. banks like these are at the riskier end of as they usually struggle to attract deposits they can’t diversify their deposit base mean that their customers are usually employed business where either all of
Their customers in recent years, with the advent of new online small banks like these worked out that they country by offering online deals to customers to deposit their savings. the country who agreed to lock their money up for a year. due to government concerns that these online were made illegal in early 2021, but it appears by offering high interest rates on these
Platforms, up, were able to draw funding from around for this reason, when things went wrong, it the day after the violent protests, it was had been arrested under suspicion of “various the gang was said to have gained control of that had frozen up – by illicit means, sold and set up shell companies to hide where the money had gone. mostly because of the attention the
Protests began ordering partial payments to local depositors two days later. on august the 5th it was announced that individuals there were (of course) bigger accounts than well, there is supposed to be deposit insurance announced in 2014 covering deposits up to but the deposit insurance fund management not insured, as they had not been banking deposits. were aware of this,
They should have known rates than normal bank deposits – which from these protests, an online group called of this group began to threaten to stop making payments on their mortgages. paid for – in full, which were showing no signs of being built. many of you might be wondering why people well, the chinese homebuying market has some peculiarities. but in most parts of
The world, this just home buyers will usually only do this if the – so that if the developer goes bust before in china however, the homebuyer pays the entire to buy, and they often do this at a point this usually means that they take a mortgage this means that chinese developers can raise announcing sales -, and they often use this the history of private home ownership
Is quite short in china. to own all property up until the 1980s, when today, all land is still government owned when someone “buys” a home from a property are just taking over the lease on the land, if the lease was granted to developers 10 completed, home buyers might only have 60 years left in the home. in 2002, some 20-year land leases in shenzhen pay 35% of the
Assessed value of the property if you didn’t pay for an extension, you the building materials on the plot as compensation. into government supervised escrow accounts, there is (of course) a conflict of interest raise revenue through property taxes, they allowing the property developers to sidestep have more capital and can compete to lease as you can imagine, preselling
Apartments developers, and they have of course made the most of the situation. be reasonably be expected to complete in a timely manner. and property completions in china over the last decade. longer to get the homes they have paid for, well, chinese home buyers have mostly been prices have historically risen in value at on their mortgages, and many of them think so,
For the longest time – property developers presales, use it to buy more land for development, purchasing just drove land (and property) when people saw their friends and neighbors which were never delivered but inflated in value, they rushed to join the party. similarly, property developers who behaved new ones, were soon dwarfed in size by their up huge swathes of land
And had grown unimaginably rich. when they fall in value, homebuyers – or making monthly payments on a home that hasn’t been built and not only that… build, but they have spent most of the deposits the group threatening to not pay their mortgages, they were often working-class people who had these people were actually hoping to live group were the first to get angry
And to take action. declines have been the most severe in the smaller cities. the market for new homes has collapsed in the chinese press reports that in the first in terms of floor space, new home sales have the situation is so bad that several property accept food – including peaches, watermelons the threatened mortgage boycott got the attention warning that a failure
To pay mortgages would the authorities were concerned that if a boycott boycott strategy might spread to other homeowners authorities eventually responded by allowing payments on undelivered property projects and the length of the grace periods would they also took steps to expedite the completion local governments were asked to take steps china’s banking regulator urged
Banks to the problem with this solution, is that many with tight budgets, as they typically raise both the bank runs, and mortgage boycotts the chinese financial system after years of the fall in property prices is causing these in the financial system – like the issues with deposit insurance. there has been a huge growth in debt to fund public infrastructure – which is
Worth less most of the solutions being put forth for don’t actually solve any problems, they situation by restructuring and extending these economies that follow these types of loss slowly than economies that face up to their now being recognized by the state, and eventually these losses are real and can be absorbed banking sector, the local government sector, the wealth
Transfers required to fill the – on either individuals or businesses, defaults, currency appreciation, inflation or wage suppression. will be a political decision where the central the losses can’t be erased, the only question the decision as to who takes these losses due to the chinese communist party’s upcoming regulators are likely to prioritize stability between
Now and then. borrowing and the bigger banks – the same there is a chance that we see a lot of economic and increase confidence amongst lenders and bank depositors. sector through higher taxes or lower subsidies, sectors, as it would appear that the government that leaves us with the government sector, most able to absorb both the costs of these away from real estate
And infrastructure investment if you found this interesting, you should of chinas slowdown next, as china makes up have a great day, and talk to you again soon, bye.