China, The World’s Largest Banking System, Is a Failure?

China is known to have the world’s largest banking system, and today, it is facing a crisis, or more precisely, a real estate crisis. In China, nearly 40 percent of loans are property loans. The entourage of dozens of real estate developers who have defaulted on loan payments, led by China Evergrande, who is the world’s most indebted developer, has put a constraint on banks.

Measures have already been undertaken by the officials in Beijing, emphasizing the arduous choices the debt constitutes for the policymakers. For instance, banks have been allotted to give an extension to debtors before their respective due dates, a step that has little liability but goes a long way to end the crisis down the road. Yet, this step may put across to borrowers and lenders a message that they can pursue injudicious exercises in the presumption of relief in the form of extra time allotted.

The string of bank collapses in China mirrors the one the United States broke through 15 years ago. China’s banks hold four-fifths of bonds, which makes it colossal for the government to let them break down.

The government holds the reins over its destiny beyond extensive regulatory powers as it has controlling stakes in almost all banks. China’s economy heavily depends on bank loans for a year or more, in contrast to marketable debt that crashed in value in 2008, sparking the global financial meltdown. Along with managers obstructing gigantic movements of funds in and out of the nation, making China’s economic system practically immune to the sort of abrupt departure of foreign money that blasted off the Asian financial crisis in neighboring nations in 1997 and 1998.

Banks, developers, and local governments are in the hope that Beijing will help them at some point, but the government of China has shown a lack of enthusiasm so far.

Lester Ross, managing partner of the Beijing office of the Wilmer Hale law firm, was heard quoting, “The system is carrying forward, waiting and waiting and waiting for some kind of bailout, and it has not come.”

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Khushboo HaqNews Writer

Khushboo Haq is a First year student of M.A. in political science and international relations at Gautam Buddha University. She wants to leverage her strong writing skills, creativity, and expertise in various niches to deliver high-quality, and engaging, content for News Media.

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