Wow China Even Im Shocked At This - Chinas Property Crisis

Happy Friday, everybody. Welcome to another episode of China Update, where we discuss leading political, economic and geostrategic analysis on the world's number two economy. My name is Tony. Let's jump in. And first up, even I am shocked by the extent of this. We very much need to discuss the story. This video today will be very focused on the sickness within the Chinese economy. First up, multiple reports in recent days show that China's commercial banks are increasingly resorting to a practice known as quick lend and recover, or phantom loans, as they struggle to meet aggressive government-set lending targets amid a broad economic slowdown. Under this tactic, lenders issue short-term loans to clients who do not actually need credit, then encourage repayment within days or weeks, sometimes covering the interest themselves to inflate loan volumes during key reporting periods. That is worth repeating. Banks across the country are, at their own cost and to satisfy government demands, making fake loans essentially because there simply isn't enough real demand for them. To say that this is concerning as an economic sign is an understatement. Interviews with bankers across the country indicate the practice has become widespread as real borrowing demand deteriorates. Despite regulators urging financial institutions to extend more credit to support growth, households and companies have grown more cautious, choosing instead to pay down existing debt or delay new investments. As one banker described, institutions have been told explicitly to keep loan issuances at least on par with last year, even as margins shrink and bad loans rise. Now, it's worth stressing that obviously most of the loans that are being seen in the country, while of dubious quality, are still real. But the fact that there is a sizable portion now that are not is deeply concerning. Chinese financial media outlet, Taicin, reports that both corporate and retail customers are being approached with offers of unnecessary short-term credit. Banks often promise to shoulder the interest costs, with some loan offices even dipping into their own pockets to keep clients cooperative. The goal is not economic activity, but the appearance of it. Regulators have long warned against such artificial credit creation. A government audit revealed that in 2023, several major state-owned lenders issued more than 500 billion yuan in loans right before assessment periods, only to have the funds returned shortly afterward. In one case, a local branch was fined for inflating both deposits and loans through this practice. The backdrop is a financial system facing its toughest structural test in years. China's property downturn, weak consumer sentiment and a soft job market have eroded the traditional engines of credit demand. Loans to the real economy grew just 6.4% in September from a year earlier, the slowest pace since records began in 2003. New yuan lending even contracted in July for the first time in two decades. Household demand has weakened sharply, too. Mid- and long-term consumer loans, often used for mortgages, continue to contract as buyers avoid the struggling housing market. Corporations, too, are borrowing less. Mid- and long-term business loans rose only 31 billion yuan in October, less than one-fifth of last year's figure. An 80% crash. Local government financing vehicles has also cooled dramatically as Beijing cracks down on hidden debt. Their numbers and total liabilities have plunged over the last two and a half years, while stricter scrutiny from the This leaves banks in a bind. Falling short of lending targets risks regulatory criticism, but taking on weaker borrowers adds to financial risk at a time when margins are already at record lows. October's nationwide credit data reinforced this dilemma. Aggregate financing of 815 billion yuan came in far below expectations, marking the weakest expansion in more than a year. For now, the central bank has signalled patience, arguing that slower credit growth is natural as China shifts away from its old investment-driven model. But unless confidence improves among households and firms, banks will continue facing the same challenge. Credit may be cheap and plentiful, but borrowers remain scarce. And China's growth continues to appear like it's built on phantom nothingness. Now the bad news unfortunately does not end there. We'll be covering two more important developments after this. But just quickly, if you're getting some value from today's episode, it's a huge help if you can hit the like button, subscribe if you'd like to continue to be on top of updates like this going forward, and if you'd like to help keep China Update financially sustainable, Patreon and BuyMeACoffee links are in the description below. Next up, while corporate and household demand collapses, unsurprisingly, local governments have entered to pick up the slack. China's local governments issued 9.1 trillion yuan, between January and October, a 23% increase from a year earlier and the highest level ever recorded for the period, according to Ministry of Finance data and public bond records. In mid-October, the Ministry of Finance and the National Development and Reform Commission approved an extra half a trillion yuan, 70.1 billion US dollars, in bond quotas. Of this, 300 billion yuan will be directed towards strengthening local fiscal capacity, including settling existing investment-related debts and clearing overdue payments owed to businesses. This issue of massive arrears owed to local suppliers has been a persistent issue with many financially strapped local governments. Market participants expect this additional quota to be issued in November and December, helping maintain a stable base of bond supply through year-end. Incredibly, of the 9.1 trillion yuan raised in the first 10 months of this year, roughly 60% was used to repay maturing obligations, while about 40% financed major construction projects. That is also worth repeating. A majority of new debt is now being used to cover existing debt. These refinancing bonds accounted for 4.4 trillion yuan, up 58% year-on-year, highlighting efforts to manage repayment pressure and extend maturities. Despite the surge in issuance, overall local government debt remains within official limits, as of September 30th, outstanding local debt stood at 53.7 trillion yuan, below the National People's Congress ceiling of 58 trillion yuan. But of course, as regular viewers know, much of real local debt is tied up with corporations, is hidden, is with local government financing vehicles, or other vehicles used to support many fiscally constrained local governments. And finally for today, let's quickly look at the property crisis which still hasn't let up. China's property developers are facing intensifying financial strain, with shrinking balance sheets and deepening losses highlighting the severity of the sector's prolonged downturn, according to a new report published this week by GF Securities Co Ltd. The combined assets of 33 mainland-listed developers dropped 11% year-on-year to 7.7 trillion yuan, 1.06 trillion US dollars in the third quarter of 2025. This marks a sharper contraction than the 10.4% decline recorded in 2024, and extends a slide that began in 2022. More concerning is the 15.6% drop in net assets, reflecting accumulated erosion of corporate value across the sector. Only six of the 33 firms reported any asset growth, underscoring the breadth of the industry's troubles. The sample is largely composed of state-backed developers, six centrally administered, and 20 controlled by local governments, alongside just seven private firms. Given that these state-owned enterprises are typically more stable and better supported, the report suggests the broader industry picture is likely even more fragile. A surge in asset impairment losses remains the central drag on profitability. Developers recorded 37.3 billion yuan in impairments during the first three quarters of 2025, a year-on-year increase of 66.3%, revenues fell 10.7% to 897.1 billion yuan over the same period. The sector now has been in the red for eight consecutive quarters since late 2023, accumulating 229.4 billion yuan in combined losses. With home prices still under pressure and fourth-quarter write-downs typically heavier, full-year losses for 2025 are expected to rise further. As we can see from these three stories we covered today, China's economy is sick. Its rot is deep and systemic. This does not mean that the entire system is going to collapse, but it is certainly a serious red flag and an incredibly difficult structural challenge that Beijing must face. It may be able to navigate these storms, but more likely we are going to see accelerated structural slowdown with the economy with a high risk of long-term stagnation, and of course there is the risk of something much worse and destabilizing. The next few months and years are going to be critical, and we'll be following it here closely on China Update. That is today's episode of China Update. Thank you so much everybody for watching. Have a good Friday. Have a restful weekend. There may be an extra episode tomorrow, so I hope to see you whether that is tomorrow or for a new week of updates on Monday.