A hidden danger looms over mainland China’s financial market, waiting to explode with its full shockwave.
Or worse, a financial crisis. A series of recent events are ringing the bell.
- 40 million homeowners default on their mortgages
According to the Bank Financial System Risk Control Conference, nearly 40 million homeowners have defaulted on their mortgages, among which over 10 million units have been foreclosed.
Some people claim that this figure might be an exaggeration, but it is a fact that mortgage defaults have risen sharply. The number of foreclosure auctions has increased nearly 190-fold over the past four years, and this year is likely to be another big year for foreclosure auctions.
Han Fuling, a finance professor at the Central University of Finance and Economics in Beijing, posted on Weibo in January that a tide of mortgage default is coming. At the beginning of 2022, four major banks sued 200,000 homeowners for defaulting.
Chinese people say that the economy is dealing with a black swan, and there is no choice but to “abandon houses and default” to survive as the property market slumps.
For example, in 2017, a person spent 2.6 million yuan, 390,000 dollars, to buy a house in Wuhan. The house price has dropped to 2 million yuan, 300,000 dollars, but he still has a 1.7 million yuan or 250,000 dollar mortgage to repay. After 5 years, he lost 610,000 yuan, more than 91,000 dollars in interest, and the house price dropped by 600,000 yuan, almost 90,000 dollars. He had no choice but to default and no longer pay the mortgage.
2. 400.000 depositors have billions of dollars frozen in 4 rural banks
This cash freeze crisis at 4 rural banks in Henan province has become national and international news. 40 billion yuan or almost 6 billion dollars of 400.000 depositors is stuck inside these banking systems, offline and online. No one can withdraw their hard-earned money.
Depositors’ health codes would turn suddenly red to prevent them from entering the city of Zhengzhou, where they would come to protest.
3. 30 real estate companies to default on 1 trillion dollars in debt
Charlene Chu is the senior analyst at Autonomous Research, a research firm division at Sanford C. Bernstein & Co. According to Bloomberg, she estimates that 30 real estate companies in China have defaulted, with total liabilities reaching 1 trillion dollars.
She said the default process has just begun, and if Chinese individuals default on real estate loans—that is, stop paying mortgages—greater risks will emerge. And as China’s unemployment rate rises, the outlook appears to be even more dire.
Some analysts point out that, judging from the current situation, China is going through a wave of factory closures, foreign capital flight, high unemployment, wage cuts, real estate price cuts, car and home loan cuts, and bank runs. With all these phenomena, China already has all the conditions for a financial crisis to break out.