The clock is ticking, problems may deepen
Why do small banks have such big problems? Many Chinese cities and even entire regions are drowning in debt. The liabilities were so high that local government representatives sent envoys to Beijing in the spring. They are negotiating terms for repaying billions in loans. Unpaid debts are increasingly weighing on regional economies, threatening national economic growth.
The debts that Chinese cities are drowning in are primarily the consequences of the real estate crisis and the effects of the pandemic. Over the past decade, many construction projects were financed with debt. Infrastructure development was supposed to drive local growth, but following the crisis caused by the COVID-19 pandemic, local governments lost the ability to continue investing. Meanwhile, they still have to repay old debts.
Goldman Sachs estimates the debts of the most important Chinese regions at $13 billion. Some of these liabilities are public bonds, and defaulting on them could damage the entire economy.
h/t Emeraldlight
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