Is the event beginning? Big Bank failure in China

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In 2024, there have been notable developments in China’s banking sector. Jiangxi Bank of China faced bankruptcy, causing significant concern in the financial industry. The bank’s assets and loans played a crucial role in this situation, leading to protests by depositors who demanded their money back. Additionally, Zhongzhi, a shadow bank, filed for bankruptcy due to its inability to repay debt and insufficient assets. These events highlight the challenges China is grappling with in managing its financial stability.

  • China’s shadow banking conglomerate Zhongzhi Enterprise Group filed for bankruptcy liquidation late on Friday.
  • The broader CSI 300 index fell by early afternoon trading, weighed down by property stocks.
  • There could be more trust loan defaults as most investments are local government financing vehicles and real estate debt, analyst warns.

Source:
www.cnbc.com/2024/01/08/zhongzhi-latest-casualty-of-chinas-deepening-debt-and-property-crisis-.html

Bank profits rely almost exclusively on home values going up over time. Home prices in many of the most populated cities in China have dropped by as much as 40% over the lst year or two. Many people are underwater in their mortgages as a result, banks are even working with homeowners to keep from having to foreclose because the banks don’t want a depreciating home that would likely sell at auction (if it sells at all) for a large loss on their books. There are also very few people buing homes even at these much lower prices, because everyone is pretty much expecting (and rightly so) that things will continue to get worse and home values will continue to drop so buying now is a bad decision.

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High end product businesses are reporting heavy losses, luxury car sales have dropped by double digit percentages even though the prices of those cars have been lowered 30% or more (often at a loss) to try and attract buyers, higher end restaurants are closing everywhere from lack of business, etc. If a job is lost it can be many months before another one is found and if they do find one it will likely be for less pay because China has way more workers than jobs right now. People all across China are starting to save what little money they have instead of spending it on eating out, new things, etc. because they are wisely realizing that very tough times are likely ahead in the next several years for their economy. The youth in China aren’t buying homes because they just see them as money traps and debt bondage. One thing many people don’t know is that you never actually own your home in China. When you “buy” a home in China you are really just buying a 70 year lease of that property. After 70 years your ownership is revoked. Another problem is that most of the buildings in China aren’t even made well enough to last 50 years let alone 70.

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Many European and American companies are also now pulling their manufacturing out of China right and moving to more business friendly countries, which is causing a large constriction of the Chinese job market, leading to a noticeably higher unemployment rate. Some of that is because of China trying to increase government funds by auditing businesses for 20+ years and often demanding immediate payments of millions of dollars in supposed unpaid back taxes along with late penalties. That dynamic is even hurting companies located entirely within China. The Chinese government’s main concern is the proliferation if the government even if it means the average person or business has to be sacrificed.

The population of China is also on a downward turn which is picking up speed as time passes. China is having way too few babies to maintain its’ population, so even without any wars, famines, pandemics, etc. China’s population is on course to drop by 50% within the next 75 years. That will also bring devastating consequences for their housing market, labor force, tax base, etc. China will likely hang on for a couple more years, because their authoritarian government and ability to prop up failing sectors of their economy is still largely working for the moment even though it is mostly based on smoke and mirrors. Eventually though, China’s economy is on pace to crash heavily, suddenly, and in a bad way for its’ citizens.

h/t jlee2027


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