The alarm bells are ringing louder. Last week, hundreds of depositors gathered in front of the Zhengzhou branch of the People’s Bank of China in the provincial capital of Henan, demanding their frozen life savings held in rural banks. A day later, tens of thousands of homeowners threatened to stop paying mortgages on scores of unfinished housing projects they had purchased. All of this happened in a week where the officials reported lacklustre second-quarter economic performance.© Provided by The Guardian Photograph: Tao Ming/APChina’s economy is facing a dangerous cocktail of stalling growth, high unemployment, spreading mortgage payment strikes and continued Covid shutdowns that threaten to explode with serious social and political consequences.The worsening meltdown in the country’s debt-laden property market is at the heart of the problem as the toxic $300bn (£250bn) debt pile unleashed by last year’s collapse of the giant developer Evergrande slowly infects the whole economy.
The initial official response to the bank demonstration was to call in squads of plain-clothed enforcers to use violence to break it up. Authorities have since claimed the bank has been taken over by “criminal gangs” and have promised to start allowing access to money.
When it emerged last week that homebuyers across the country were banding together to refuse payments on mortgages on homes left unfinished by debt-distressed developers, it was the another sign that the faith of ordinary Chinese people in the property market and wider banking industry is beginning to dissolve.
“Why do I have to pay mortgage when the property I bought has yet to be finished?” said one angry social media user after watching a viral documentary about how hundreds of homebuyers in central Chinese city of Xi’an have to live in unfinished apartments.
Under pressure, Beijing’s regulators vowed last Thursday to help local governments finish property projects on time. By Monday, the government was reportedly coming up with measures to allow homeowners to temporarily halt mortgage payments on unfinished property projects without affecting their credit scores.
This is a precarious moment for China’s ruling Communist party in the run-up to its 20th party congress later this year, because it signals falling confidence in a year that was supposed to prioritise stability, said Diana Choyleva, the chief economist at Enodo Economics, a macroeconomic consultancy in London.
“Homebuyers’ refusal to pay mortgages on unfinished properties across cities in China and the mass protests in Henan by bank depositors demanding their savings back and condemning government corruption are another manifestation of the huge challenges Beijing faces at present,” she said.
A broken economic model
For years, property has been a key driver of China’s inexorable growth, with prices rising steadily for decades and offering a seemingly one-way bet to guarantee income growth for the new middle class. China’s property market accounts for an estimated 30% of its economy.
However, that relentless expansion can no longer be taken for granted, as Friday’s weak GDP numbers showed. Repeated lockdowns of major cities to contain the Omicron coronavirus variant have taken a heavy toll. Lanzhou, a city of almost 4 million in north-west China, became the latest when it announced a weeklong lockdown on Wednesday, while the threat of further paralysis hangs over megacities such as Shanghai.
Source : The Guardian
Post a Comment