Once China sets its GDP target, local governments (and, until recently, the property sector) have had the responsibility of delivering enough economic activity to bridge the gap between the GDP growth target and what Beijing usually calls “high-quality growth”-that is, the underlying growth rate delivered by the private economy, consisting mainly of consumption, exports, and business investment.īridging the gap between the two was not a problem for the Chinese economy during the first thirty years of the period known as reform and opening up (the late 1970s until the late 2000s), mainly because China was seriously underinvested in property, infrastructure, and manufacturing capacity, so the investment that the GDP growth target required was, for the most part, productive. In most countries, GDP is a measure of the output delivered by economic actors over a specified period, whereas in China GDP is an input determined politically at the beginning of a time period. China’s Financial DeteriorationĪt the heart of this credit-deterioration process is the way in which the form and structure of economy activity in China has evolved over the past ten to twenty years. Until the systemic problem is addressed and resolved, there can be no permanent stabilization of China’s property market or of its economy more generally. In the medium term, property prices will continue to decline, and insolvencies will keep on emerging. This means, among other things, that even if the property market recovers next year as a consequence of the end of pandemic lockdowns, the recovery can only be partial and temporary. They are far more likely to be part of a systemic problem that has been brewing in China’s economy for more than a decade. Because these events seem to be happening regularly, and with rising breadth and magnitude, it should be clear that they are not isolated events that can be blamed on the various triggers that set them off. The Baoshang case was followed by interventions or investigations involving several other institutions, including banks, shadow banks, property developers, local governments, homebuyers, and other overextended borrowers. A little over a year later, Baoshang became the first Chinese bank to be shut down since Shantou Commercial Bank closed shop in 2001. It was just the most recent in the country’s latest string of notable financial events, which can be said to have started back in May 2019 with the intervention in Baoshang Bank. Continued abuse of our services will cause your IP address to be blocked indefinitely.After discussing the troubled rural banks in Henan in my previous post, it is important to note that what happened in Henan was not the first adverse credit event to hit the Chinese financial system. Please fill out the CAPTCHA below and then click the button to indicate that you agree to these terms. If you wish to be unblocked, you must agree that you will take immediate steps to rectify this issue. If you do not understand what is causing this behavior, please contact us here. If you promise to stop (by clicking the Agree button below), we'll unblock your connection for now, but we will immediately re-block it if we detect additional bad behavior. Overusing our search engine with a very large number of searches in a very short amount of time.Using a badly configured (or badly written) browser add-on for blocking content.
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