The mortgage boycott in China is intensifying. Now Evergrande suppliers have stopped paying bank loans
A fast-growing mortgage boycott in dozens of cities across China has prompted some property providers to halt their bank loan repayments, raising fears the escalating situation could trigger another downward spiral in the sector and even threaten stability. country’s finance.
- Some defaulting developer vendors, like Evergrande, refuse to repay loans
- It comes after a massive mortgage strike by home buyers across the country
- China’s economy is already facing downward pressure due to COVID lockdowns
Hundreds of landscapers, sculptors and construction companies have expressed their anger that they have been bled because some indebted developers failed to pay their bills as they continued to maintain or help build apartments, a reported Chinese media Caixin.
The ABC saw a joint statement, circulating on social media, signed by a group of contractors and suppliers from Evergrande in Hubei province saying they are “broke”, have “lost hope” and will stop pay all loans and arrears.
“We have been struggling for more than a year, selling our assets and cars, and running out of credit cards to pay the bills,” the letter, addressed to provincial banks and authorities in Hubei, said.
“Evergrande should be held accountable for any consequences that ensue due to the chain reaction of the supply chain crisis.”
The ABC approached Evergrande for comment. China’s biggest developer is reeling from more than $400 billion in debt.
Other major developers, including Fantasia, Kaisa and Sunac, also defaulted on bond payments earlier this year.
“The ripple effect is vast”
Concerns over developers’ inability to complete housing projects have sparked a nationwide strike, with a wave of disgruntled buyers across the country refusing to pay their mortgages unless their homes are built.
The movement began in late June when around 900 Jiangxi residents made the desperate decision after construction of their pre-sold apartments in Evergrande had stalled for more than a year.
In just a few weeks, the boycott quickly spread to at least 300 unfinished projects in more than 90 cities, Bloomberg reported.
“The ripple effect of that is really vast, when you look at the kind of broader network, not just of homebuyers, but also of suppliers and contractors that rely on that kind of ecosystem” , Rebecca Choong Wilkins, policy and government correspondent in Asia for Bloomberg, told RN.
Since the outbreak of the mortgage strike, China’s banking regulator, the China Banking and Insurance Regulatory Commission (CBIRC), has repeatedly assured home buyers that unfinished housing projects will be delivered and encouraged banks to assume their “social responsibilities” to help housing projects worthy of financing.
It is reported that China may grant affected homebuyers a mortgage holiday that would allow them to temporarily suspend their repayments without incurring penalties.
“The latest development in the mortgage repayment boycott is quite significant,” Betty Wang, senior China economist at ANZ Research, told the ABC.
“This signals that downside risks in the real estate sector have shifted from supply-side factors to demand-side factors.
“Mortgage loans are considered the safest asset for Chinese banks because they offer a fairly good yield.”
Ms. Wang said the quality of mortgages was important to keep local banks’ assets healthy, as mortgages account for nearly 20 percent of outstanding loans across the banking system.
The collapse of the real estate sector weighs on the Chinese economy
Some risks are already present in the Chinese financial system and economy.
ANZ estimates that up to 1.5 trillion yuan ($220 billion) in mortgages are tied to unfinished housing projects, or about 4% of total outstanding mortgages.
But some of the most exposed banks, including the big four – Bank of China, Agricultural Bank of China, China Construction Bank and Industrial and Commercial Bank of China – said earlier this month that the risk was manageable and that their mortgage books were linked to these projects. were relatively small.
According to Ms. Wang, the market share of home sales held by developers who have defaulted in the past 12 months is around 10-15%.
Rising COVID cases and periodic shutdowns in China have affected home sales and household incomes as property prices have fallen for the past 10 consecutive months.
The collapse of the real estate sector, which accounts for around 30% of China’s gross domestic product according to some indicators, is affecting the real economy.
China’s second-quarter GDP growth slowed to a trickle, at just 0.4%. Many economists have lowered their annual forecasts to 3%, well below the government’s target of around 5.5%.
Despite the slowdown, Premier Li Keqiang said last week that the government would not provide any large-scale stimulus package to stimulate the economy.
Meanwhile, China’s unemployment rate among people aged 16 to 24 has hit record highs, hitting 19.3% in June, which could add further pressure on the government.
Some critics say that Beijing “three red lines“The scheme – which was introduced about two years ago to reduce debt within industry, rein in property prices and raise building standards – has gone too far.
“At the start, that would potentially be a positive thing, it would help prevent the risk of a market bubble,” Ms Wilkins said.
“So many global investors actually have a lot of exposure to Chinese developers through their corporate bonds. And it was once one of the most profitable corporate bond deals in the world that has since been demolished by this crackdown. .”
As the 20th National Congress of the Communist Party of China approaches, the government faces mounting pressure from civil unrest caused by real estate and financial problems.
Earlier this month, the scandal of five rural banks in Henan and Anhui provinces illegally freezing all cash withdrawals due to fraud and corruption left thousands of small savers without funds and sparked violent clashes between protesters and local authorities.
While the Chinese government appears to have resolved recent issues in a timely manner, the effectiveness of its new policies in resolving the real estate crisis remains to be seen.