Mr. Zhao deposited his life savings in a bank in central China, but now has no access to them.
Core items:
- China’s economy is being weighed down by problems in the banking sector and a contraction in the real estate market
- The nation has also posted its lowest quarterly growth rate since the 1990s
- Business leaders have differing views on how China’s troubles could affect Australia’s economy
The 44-year-old said his 1 million yuan ($217,000) had been frozen since April.
“All my life savings suddenly fell to zero. I’m at a loss,” he said.
Mr Zhao – who only wanted to use his last name to speak to the media out of fear of retaliation from local authorities – is among 400,000 people affected by one of China’s biggest banking saga.
Six banks in rural China have been hit hard by Beijing’s efforts to stem a housing bubble and rising debt, in a financial crackdown that has had far-reaching implications for the world’s second-largest economy.
The slowdown forced four banks in Henan province and two in Anhui province to freeze all cash withdrawals since mid-April, leaving thousands of small savers without money and sparking rare, sometimes violent, protests.
When it comes to China’s economic woes, the banking problem is just the tip of the iceberg.
Shortly after the protests, Beijing announced that China’s economic growth had fallen dramatically.
Here’s a snapshot of other issues affecting the country’s economy and how some business leaders believe China’s situation could affect Australia.
China’s economy causes ‘ripple effects’
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The China director of the Economist Intelligence Corporate Network, Mattie Bekink, said China’s most recent quarterly growth rate was the lowest of its kind since 1990.
“The pressure is real,” Ms. Bekink said.
Speaking to ABC program The World, she said China’s strict adherence to its COVID-zero strategy has also slowed global economic growth and contributed to global inflation spikes, noting that “2022 will be a rough ride for the global economy.” .
“That’s not the technical way to describe it, but I think that’s the reality that we’re living through,” she said.
Ms Bekink said China’s economic situation is having “ripple effects” on other economies, including Australia, which have been evident through production and transportation disruptions in supply chains since the pandemic began.
“On the one hand, it demonstrates our global interconnectedness,” she said.
“But … it also shows the need to find more global solutions to some of these pressing challenges.”
“What’s happening in China – and lockdowns in Shanghai – has implications for Melbourne and beyond.”
Li Wei, lecturer in international economics at the University of Sydney, said Australia’s economy is in a strong position and has historically shown resilience to downturns in China’s economy.
“If China’s full-year economic growth stays at 2 percent this year, Australia will not be affected,” said Dr. Li
Wang Jiao, a research fellow at the Melbourne Institute of Applied Economic and Social Research, said that despite the sharp drop in growth numbers, the data also suggests China’s economy is already recovering.
“If we look at the second quarter itself, it’s bad,” said Dr. Wang, “but if we put it in the short-term perspective, I think the data from June in particular showed that the economy is recovering. “
Her comments come as Australian business leaders this week appeared unfazed by China’s formal formation of a new mineral giant aimed at giving Chinese steelmakers more bargaining power over the prices of Australia’s main export, iron ore.
Real estate market in China under stress
Homebuyers are refusing to pay mortgages on unfinished homes and apartments. (Reuters: Bobby Yip)
Aside from the banking saga, another major problem facing China’s economy is a declining real estate market.
“Real estate accounts for about 78 percent of household wealth in China,” Ms. Bekink said.
The country’s real estate sector struggled last year when the Chinese government took measures to curb homebuyers’ borrowing from property developers, resulting in at least 18 defaults.
In China, homebuyers begin paying off mortgages on a property when the down payment is made before construction is complete.
“Loan payments start with that initial deposit and can go on for years while projects are delayed, and you’re seeing that now,” Ms. Bekink said.
“Over the past decade, it’s really been the cash from pre-sales that has fueled the real estate boom and allowed developers to start new projects before the old ones were completed.”
The situation has caused thousands of homebuyers involved in about 100 projects in 50 cities to refuse to pay their mortgages due to construction delays, which in turn has caused housing projects in China to stall.
Ms Bekink said it was still unclear whether the crisis in the property sector was “rescuable”.
dr Wang said the decline in China’s housing market would lead to weaker demand for Australia’s exports of commodities such as iron ore, but that Beijing’s stimulus policies could create new opportunities for Australia’s key industry.
“Whatever is lost in the housing market could be offset by higher demand for infrastructure investment,” she said.
The problems in the real estate market also mean less revenue for local governments in China.
Local media have reported that civil servants’ salaries in wealthy provinces on China’s east coast have been cut by as much as 30 percent, while various bonuses have been cut.
Sources told ABC that some employees in state institutions in Henan province, where the banking scandal took place, even had their salaries suspended.
China rules out economic stimulus
Chinese Premier Li Keqiang spoke at a press conference earlier this year where he expressed more optimism about China’s growth targets.`: By Han Guan)
China’s Premier Li Keqiang said this week that the government will not provide large-scale stimulus packages to boost the country’s economy.
Speaking at a virtual dialogue hosted by the World Economic Forum, Mr Li said it will take a long time for the economy to stabilize but the country will “do its best” to achieve growth.
dr Li of Sydney University said China’s COVID-19 policies and Russia’s invasion of Ukraine will continue to challenge China’s economy this year.
“Normally, China uses the financial support from the central government to stabilize its economy,” she said.
“But … I don’t think China’s economic growth will meet the official 5.5 percent target this year, or the 4.3 percent recently forecast by the World Bank.”
In 2020, Beijing announced a series of infrastructure plans to boost the economy, including the development of the 5G network, high-speed trains, electric vehicles and charging stations.
Chinese authorities have not said when they will end the nation’s COVID-zero policy. (`: By Han Guan )
What is wrong with these banks?
To ease anger over the banking scandal, the Henan Provincial Banking and Insurance Regulatory Agency said it would start releasing funds.
“Prepayment will be released for customers with a total of less than 50,000 yuan in savings in an institution,” it said.
“If the total amount of a single institution is more than 50,000 yuan, the prepayment will be made successively and the prepayment agreement will be announced separately.”
However, the agency’s move is unlikely to immediately restore confidence between depositors and their banks.
“Chinese have 100 percent trust in banks. They should be more secure than a vault,” said Mr. Chen, another customer who was denied withdrawals.
“After that, who would dare to use the digital yuan?”
ABC/Wires
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