China on the way to Sri Lanka! Growth halted, huge power crisis and bankrupt banks are giving danger signs

China’s growth in the last two decades surprised the whole world. The double digit growth in the gross domestic product (China GDP) year after year was a dream for any country, which China made possible. But now since the beginning of the year 2022, the Chinese economy has started staggering. From the news that is coming about the Chinese economy, it can be guessed that the wounds in the Chinese economy are very big and they are getting bigger.

The signs that are coming from China show that everything is not going well in China. June is the 10th consecutive month that property prices in China have fallen. China is facing a severe shortage of coal and this has led to a severe power shortage in the country. Not only this, the banking system of the country has also started faltering. Many small banks have become defaulters. Growth in China’s GDP has also stagnated.

Real estate crisis
According to a Moneycontrol report, the mess in China’s real estate sector began last year, when the government enacted three rules, known as the ‘Three Red Lines’, to reduce the debt dependence of real estate companies. goes. China’s largest real estate company Evergrande failed the test of these rules. As a result, Evergrande found it difficult to raise more debt. Evergrande has more than 1,300 projects spread across 280 cities in China. The company’s total assets are 2 trillion yuan, which is 2% of China’s total GDP. The number of customers of Evergrande is currently 1.5 million, whose money is stuck. Customers of more than 100 projects in about 50 cities have stopped payment and are asking for their money. The company has liabilities of over $300 billion and has already started defaulting on several bond payments.

If Evergrande sinks, the real estate sector will collapse
The share of the real estate sector in China’s GDP is 12%. Therefore, if Evergrande goes bankrupt, it will have an impact on the entire Chinese economy. This will reduce the demand from cement, steel, sanitary ware and many other industries. At present, the situation is that home sales have declined for the 12th consecutive month, which is the longest slowdown in the private property market since 1990.

Severe power crisis
China is suffering badly from the shortage of coal and as a result, the industrial areas of China are going out of power for hours. China’s manufacturing sector has been badly affected by the power outage. China takes raw materials for its manufacturing from many countries of the world and if Chinese industries cut production then it will affect the supply chain of the whole world.

Bad banking system
In April this year, several small banks in China’s Henan province failed, with assets (everything) of $6 billion (40 billion yuan) and nearly 400,000 customers. According to the rules of the Chinese regulator, there is a sovereign guarantee of 5 lakh yuan to the customers there on the amount deposited in any bank. But instead of returning the money, the Chinese authorities have made every effort to silence these customers. People protesting in the capital of Henan were even attacked.

Mismanagement, corruption, weak regulation and poor risk management are present in about 4,000 more small and medium-sized banks operating in China’s rural and urban areas, with combined assets of $14 trillion. If these banks start going bankrupt, then there will be a terrible economic chaos in China. Since 2009, the strategy of growth based on debt is being implemented in China. For this reason, today the Chinese banking system is sitting on a debt-GDP ratio of 264%.

Development stopped, then everything stopped
Actually, growth is the biggest thing in any loan based growth. As long as the growth continues, the cycle of debt continues. In the last two years, Kovid shook the fundamental pillars of China’s economy. In the second quarter of this year, the growth rate of China’s economy has come down to 0.4%, while compared to the first quarter, it has contracted by 2.6%. China’s local governments’ income is estimated to decrease by 6 trillion yuan this year. China has given billions of dollars in loans for its ambitious Belt and Road project to such Asian and African countries, which are economically weak. It may be difficult for them to pay the interest on that loan, as we have seen in the case of Sri Lanka.

Therefore, it may be that a large part of these loans will have to be written off by Chinese banks. All these circumstances are indicating that the difficulties being seen in China’s economy may be long-term and challenging. If China falters in the place that China has in the global economy, then everyone will have to bear the pain in the short term. But in the long run, it can become a cause of relief for the whole world including India, not only economically, but also geopolitically.