Housing Crisis

“China’s current economic slowdown is not related to external trade, which has remained stable over the past three years despite the negative impact of the trade war, the Russian-Ukrainian war and the epidemic,” he says. “The real cause of the crisis is that we have a big debt problem on our balance sheets.”He adds: “Since July 2021, property markets have been suppressed by policies, leaving a lot of homes and land in the markets. In this situation, families, companies and local governments dumped their assets, resulting in further contraction in asset prices and a vicious cycle of debt problems.”

He says the central government should bail out the heavily-indebted local governments – because it was the center that had capped land prices and that also had taken away some of the local governments’ land sales revenue in the past, making them unable to repay their debts. He says the central government should purchase the local governments’ non-performing assets and revitalize them.

He warns that China will face an economic recession if no actions are taken.

According to China’s Ministry of Finance, the outstanding amount of local government debt grew 15.1% to 35.06 trillion yuan ($5.02 trillion) at the end of last year from 30.47 trillion yuan a year earlier.