A mortgage crisis is knocking at his door.

China’s next big worry: A mortgage crisis is knocking at its door.

China Ever Grande, a real estate tycoon, warned local authorities in a letter in 2020 that the cash crunch would have serious financial and societal repercussions. It is estimated that two million buyers could protest the approximately 600,000 unfinished apartments in the coming years. And that’s what’s happening right now.

Concerns about the Chinese property market were raised by the decision of buyers of more than 100 projects in 50 cities to stop making mortgage payments on unfinished homes after an extended halt in construction.

According to a report by Chinese media outlet Caixin, landlords are protesting developers’ failure to meet construction deadlines and demanding that they resume work and deliver properties on time.

China’s economy has already seen its weakest quarterly growth in more than two years due to the negative effects of the government’s ongoing draconian zero-Covid policy lockdowns. According to the National Bureau of Statistics (NBS), GDP grew by only 0.4% between the first and last quarters of 2021 and 2018.

Why have borrowers stopped repaying their loans?

New homes are almost always sold on the Chinese real estate market before they are even built. However, when heavily indebted developers run out of money, owners have little more than financial liability.

What effects can protests have?

Due to landlord protest, banks holding $6 trillion in mortgages are now at risk of defaulting on bonds issued by offshore developers. President Xi Jinping has been working to deleverage the real estate market, but the growing financial risk of investing in real estate that exceeds three standard deviations puts the nation in a precarious position.

What is the link with the financial crisis in China?

Steadily rising property prices, soaring family debt and the property industry as a whole in China, where real estate has been a major engine of development for years, accounts for around a third of GDP. from the country.Chinese cities go to great lengths to boost home sales - Xinhua English.news.cn

Last year, with the asset price bubble in mind, China’s president set three “red lines” to restrict funding and force developers to repay debt. Following this, a number of unexpected defaults occurred, one of which also involved Evergrande, forcing the bondholders to accept extensions or take legal action.

What is the current demand for developers?

Chinese regulators have asked developers to direct available cash towards finishing projects after realizing that potential misuse of down payments has led to delays in home construction. However, as sales continue to decline and new financing remains scarce, development of almost 10% of homes sold in 2021 in 24 major cities has stalled.

According to experts from China Merchants Securities, the delays could affect loans worth at least 1.7 trillion yuan ($250 billion).

Chinese authorities have asked banks to give them credit so that developers can complete unfinished housing projects. On Sunday, the China Banking and Insurance Regulatory Commission (CBIRC) advised banks to meet developers’ financing needs, if any.the prices of new houses in china increase with the return of demand in major cities |  Reuters

What does the government think of this?

Regulators pledged last Thursday to help local governments complete projects on time. According to reports, the government proposed plans on Monday that would allow homeowners to temporarily stop paying their loans for incomplete home repairs without impacting their credit rating.

According to Hui Shan, chief economist for China at Goldman Sachs Group Inc., “the main issue here is for the government to move quickly to build confidence, solve the current problem and also provide more clarity to the market and investors on how this slowdown in the real estate sector will be resolved.

What can China do to prevent the situation from getting worse?

Beijing’s property reset is approaching a critical and dangerous phase, and China must decide quickly whether to allow buyers to defer mortgage payments or allow local governments to buy back projects to prevent the problem from escalating. ‘worsen.

According to Diana Choyleva, chief economist at Enodo Economics, a macroeconomics consultancy in London, “it is a precarious time for China’s ruling Communist Party as it approaches its 20th Party Congress later this year, as this signals a drop in confidence in a year it was supposed to be a priority.

The Chinese real estate crisis is comparable to the American recession of 2008.

China is expected to release its second quarter economic growth figures. The COVID shutdown, which caused unrest across the country, caused China’s GDP to contract 6.8% in the first quarter of 2020. Chinese data firm Wind predicted growth of 1.1% year-on-year annual, which would be the lowest since that time. Analysts estimate that real estate accounts for more than 70% of family wealth in China, making it the largest component.china pledges to maintain real estate market stability and meet demand this year |  Reuters

While the country’s corporate and household sectors are feeling the pressure of the current financial crisis, it is believed to be unlikely to lead to a situation similar to that which occurred in the United States in 2008/09. , when a mortgage crisis triggered a global financial disaster.

According to Zhang Zhiwei, chief economist at Pinpoint Asset Management, this is because banks in China are mostly controlled by the government, which has the financial capacity to help them if needed.

As a result, a significant number of buyers across China have threatened to stop paying off their mortgages for unfinished real estate projects, worsening a real estate crisis that has already impacted China’s economy.

Can India benefit from China’s economic weakness?

Given the domestic and global concerns about China, India is in the best position to take advantage of these concerns about China. Outwardly, there are fears that China is acquiring an aggressive and predatory mindset. Concerns are being expressed internally about the slowdown in the Chinese economy. India is well positioned to fill some of the gaps by producing cheaper items than China and doing more.view: can india benefit from the world's frustration with china?  - the economic context

India needs to be more accessible, more welcoming and more open for business. India needs to reduce the huge amounts of red tape that are still in place. Economically, Prime Minister Modi is doing well and he has carried out second-tier reforms.

China’s economic strategy poses a danger to India.

The geopolitical analyst also pointed to the threat posed by China’s actions against the global economy and trade. India should be concerned with Chinese foreign policy from an economic point of view since it is designed to surround it strategically. It seems that China supports the ports that encircle India.