China faces an imminent and colossal financial crisis.

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Amidst the deflation of the Chinese bubble gaining momentum, Beijing is responding with increasing desperation, resorting to extreme measures to salvage the nation’s financial stability.

The property market is at the epicenter of the storm, with policymakers applying unprecedented pressure on banks to address a monumental $446 billion funding shortfall. This funding is urgently needed to stabilize the industry and complete millions of unfinished apartments. A draft list of eligible developers, including industry giants like Country Garden Holdings Co. and Sino-Ocean Group, reveals a strategic pivot to aid some of the most distressed builders.

However, the challenges are far-reaching, encompassing millions of homes sold but left unfinished. More property developers defaulting on debt adds to construction delays and stalls residential projects, triggering a vicious circle of diminishing confidence in the housing market. Analysts estimate around 20 million units of uncompleted and delayed presold homes across China, necessitating over $440 billion to finish these homes.

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In a desperate attempt to address the liquidity gap facing developers, China contemplates allowing banks to offer unsecured short-term loans. This move, though, is fraught with risks, as critics warn of the vulnerabilities of stretched banks engaging in unsecured developer lending.

As China grapples with the daunting task of rescuing its financial sector, a multi-trillion dollar black hole looms large. The challenge extends beyond the realm of developer debt, with local government debt exceeding $12 trillion and a $3 trillion trust industry. The unfolding crisis, marked by dwindling confidence, defaults, and liquidity shortfalls, paints a sobering picture of China’s economic teeter-totter, with global implications that echo far beyond its borders.

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Sources:

Credit Bubble Bulletin: Weekly Commentary: Really BIG


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