China’s Real Estate Crisis Causes Surge in Bad Debts for State-Owned Banks

China’s real estate market is in crisis, with bad debts at the country’s largest banks soaring for nearly three years. This week, ICBC, CCB, ABC, and BOC announced significant increases in bad debts for 2023. The total bad debt at these four banks rose by 10.4% last year to reach 1,230 billion yuan (170 billion USD).

The rising bad debt related to real estate of these four banks has impacted the banking sector and the overall health of the economy. The Chinese government has implemented various policies to support the struggling real estate market, but several companies have gone bankrupt and others are facing financial difficulties. One of the biggest real estate companies in China, China Evergrande, is currently liquidating assets to settle its substantial debt. Country Garden, another major private real estate company, is also facing cash flow problems due to the ongoing crisis.

As the real estate crisis continues to unfold, other banks like Merchants Bank and Bank of Communications are bracing for further increases in bad debt as economic slowdowns and falling asset prices exacerbate the situation. These challenges highlight the interconnectedness of the real estate sector with other sectors of the economy and make it crucial for banks and policymakers to closely monitor and address growing risks to financial stability.

The four state-owned banks announced that their total bad debt related to real estate had increased by 183.9 billion yuan in 2023 compared to 151 billion yuan in 2022. CCB saw an increase of 43.3%, while ABC reported a jump of 1.25%. ICBC and BOC reported decreases.

The rising bad debts are impacting not only these four banks but also other private banks like Merchants Bank and Bank of Communications. These challenges highlight how closely tied together different sectors of the economy are.

In conclusion, China’s ongoing real estate crisis is causing a surge in bad debts for its largest banks, including ICBC, CCB, ABC, and BOC. The interconnectedness between different sectors means that policymakers need to address this issue carefully to prevent contagion risks from spreading throughout the economy.