Not only Evergrande worries China’s Economy

One of China’s biggest property developers, Evergrande, is sliding toward bankruptcy with $300 billion in debt. This condition produced fears of a financial crisis or a more comprehensive property crash.

However, this is not the only crisis attacking Xi Jinping`s government. It might be a sudden electricity shortage that can threaten the economy and slow down manufacturing. Last year, the government made a brutal campaign to control China’s vibrant internet firms. It resulted in driving hundreds of billions of dollars in investor losses.

Government policies triggered these issues, but Beijing thinks these policies will fix economic structural problems and produce more stable foundations for future growth. Many features signal the probable end of China’s economic boom. However, forecasts of China’s doom might not be accurate in the end.

Besides that, the economic growth in the latest quarter showed an increase of just 0.3% compared with the prior quarter. Experts forecast that the next several months will remain more inflexible. Slower growth in the economy of China is undesirable news for a global economy as it is struggling to recover after the disturbances of the current pandemic. However, over the next few years, China might recapture momentum because of the hard work. 

Overview

At the moment, the most significant critical problem is the collapse of Evergrande as it relies on two essential funding sources, like most Chinese property developers. Those sources are deposits that home buyers pay before construction and vast amounts of debt. 

According to the BIS (Bank for International Settlements), China’s gross debt level has doubled since 2008 at 290% of G.D.P. That level is high for middle-income countries compared to rich countries with well-developed financial policies. China’s authorities know that to avoid a financial crisis in the future, they must be less reliant on debt.