‘Dead-End’: China May Be On The Verge Of A Major Debt Crisis, Experts Say

‘Dead-End’: China May Be On The Verge Of A Major Debt Crisis, Experts Say

Philip Lenczycki on July 7, 2022

• Recent bank runs throughout China and the country’s collapsing real estate market are merely symptoms of an impending national debt crisis, multiple experts told the Daily Caller News Foundation.
• “The amount of debt is too large for Beijing to deal with,” Gordon G. Chang, author of “The Coming Collapse of China,” told the DCNF.
• “The Chinese economy lacks growth engines and innovation,” Jennifer Zeng, host of the YouTube show Inconvenient Truths, told the DCNF.

China may be on the precipice of a serious debt crisis amid a faltering real estate market and previous bank runs throughout the country, experts told the Daily Caller News Foundation.

Chinese authorities arrested several suspects for misappropriating $6 billion from banks on June 18 after customers were unable to withdraw funds in May and June, prompting bank runs to spread in central China, according to multiple sources. Bank runs emerged just months after China’s largest residential developer, Evergrande, defaulted under a $305 billion debt obligation in December 2021, sending shockwaves through the nation’s real estate market.

Although Chinese authorities made arrests in connection with the bank runs, China’s unacknowledged debt crisis is actually causing cash shortages and ensuing bank runs, Gordon G. Chang, author of “The Coming Collapse of China,” told the DCNF.

“Chinese authorities are moving against whom they consider to be the perpetrators, but the issue here is not just one isolated incident,” Chang said. “There are bank runs throughout China and there are also restrictions on deposit withdrawals throughout China. That points to the larger problem of banks and other financial institutions running out of liquidity. My best guess is the total country debt approximates 350% of gross domestic product.”

“Beijing can defer a reckoning, it can do that for months, maybe even do it for years. But the amount of debt is too large for Beijing to deal with,” Chang said.

The International Monetary Fund reported that China had around 50% debt-to-GDP in 2021, while Japan has the most debt-to-GDP of any country, holding around 263% in 2022.

China’s real estate market disaster has significantly contributed to its looming debt crisis, which is the ultimate cause of the nation’s widespread bank runs, Jennifer Zeng, a human rights activist and the host of the YouTube show “Inconvenient Truths,” told the DCNF.

“The collapse of the real estate market will bring double problems for the banks. Both the developers and home buyers will have problems paying back the loans or mortgages,” said Zeng. “That’s why the banks are having problems with their funds.”

Although the economic fallout from Shanghai’s COVID-19 lockdowns certainly contributed to China’s debt crisis, the nation’s economic problems are ultimately systemic in nature, Zeng told the DCNF. China’s retail sales contracted by 11.1% in April and 6.7% in May following Shanghai’s city-wide lockdown on April 5, according to the South China Morning Post.

“The lockdowns have caused tremendous damage, but like a Chinese idiom says, ‘it takes more than one cold day for the river to freeze three feet deep,’” Zeng said. “Overall, the Chinese economy lacks growth engines and innovation. It has many structural problems and has long relied on the unhealthy development of the real estate market and the theft of technology from other countries to develop. This path has clearly come to a dead-end.”

However, Derek Scissors, senior fellow at the American Enterprise Institute, isn’t convinced that the bank runs necessarily indicate a national trend, telling the DCNF they seem “driven by local corruption.” Even still, Scissors said he believes the Chinese government is concealing poor economic numbers.

“China’s economy right now is weak,” Scissors told the DCNF. “The economy will improve over the course of the year, but that’s as compared to this low point. The government is going to lie about second-quarter statistics, as they always do when things are bad.”

The Chinese government reported 4.8% gross domestic product (GDP) growth in the first quarter of 2022, missing the government’s 5.5% target. Experts, such as Scissors, expressed skepticism towards the accuracy of Beijing’s figures at the time.

China is reportedly expected to announce 1.4% GDP growth for the second quarter of 2022 next week, which would be its lowest quarterly growth rate in over two years, according to the South China Morning Post.

The Chinese Embassy referred the DCNF to a bulletin from China’s State Council when asked about the bank runs and China’s economic future.

“The situation of the pandemic prevention and control in China was turning for the better, production and demands gradually recovered, employment and prices were generally stable and major indicators improved marginally. The national economy showed a momentum of recovery,” the government bulletin stated.

China Construction Bank and Bank of China did not respond immediately to the DCNF’s request for comment.