China’s real estate industry has been struggling with falling sales and prices for the past two years, with Evergrande filing bankruptcy and Country Garden running into financial difficulties. Panelists on “Pinnacle View” warned that the continued decline of the real estate market could potentially trigger a serious financial crisis.
Real Estate Collapse and Financial Crisis
Cai Shenkun, a Chinese economist and blogger, said that China’s economic development has been heavily dependent on real estate, with the banking sector deeply intertwined with the real estate market. As property prices rose, so did bank profits.“The current downturn poses a significant risk to both large and small banks, leading to a potential debt crisis,” Mr. Cai said. “China’s central bank recently identified 337 small and medium-sized banks as high-risk financial institutions. These banks, along with some larger ones, are saddled with significant non-performing loans, exacerbated by problems in the real estate sector.”
Mr. Cai estimated that nonperforming debts in the property market could exceed 100 trillion yuan (about $14 trillion), using the Hainan property crisis in the 1990s as a reference, which resulted in 200 billion yuan (about $28 trillion) in nonperforming assets.
Governance and Economic Downgrading
Guo Jun, president of the Hong Kong edition of The Epoch Times, said that “downgrading” has become a buzzword in China as the country downgrades consumption, investment, expectations, and people’s aspirations.
“The root cause of these problems is the downgrading of China’s management model and political system, which is characterized by the centralization of power and a shift away from the reforms of the past,” Ms. Guo said.
“The CCP has recently advocated the modernization of social management and the strengthening of the Party’s overall leadership, all of which I think are downgrades of the CCP’s management model.
“The ‘modernization of social management’ includes the complete abolition of the election process for village committees, with village party chiefs taking over the posts, the increased monitoring of bank deposits, consumption patterns, and a comprehensive surveillance system of all Chinese citizens, facial recognition, and so on. These are, in fact, the tightening of control over people’s behavior. This shift is in sharp contrast to the decentralization efforts during China’s reform and opening-up period.”
According to Ms. Guo, strengthening the party’s overall leadership means abolishing the separation between the party and the government, reverting to a system in which the party replaces the government.
“On another level, these directives are meant to strengthen the power of the central authorities and move toward a planned economy,“ she said. ”The CCP believes that the people are stupid and must rely on a few extremely intelligent elites to guide the direction of society, so this is the basic idea of a planned economy. Especially in the bureaucratic system, the subordinates don’t have to think about anything. The superiors are so smart and intelligent that they can tell you to do whatever they want. The decentralization of power between the central and local levels used to be a cornerstone of China’s reform and opening up, but it has now been completely downgraded to the past.”
Ms. Guo said that the downgrading of China’s institutional system inevitably leads to the downgrading of Chinese society as a whole, and economic downgrading is only a part of it.
“It is impossible for the CCP to build a modernized system or to upgrade the system, so Beijing cannot do anything to get rid of the current problems,” she said.
“However, I do not think that economic downgrading or even institutional downgrading is a deliberate choice of Xi Jinping, but it is indeed in line with the political logic of the CCP. The political goals that Xi Jinping is pursuing are his historical status and the legitimacy of his power, and he needs to unify Taiwan to establish these things. To unify Taiwan, he needs to go to war, not just with Taiwan, but with the United States, which requires a change to a war system. All of the above downgrades are a requirement of the war system, and he wants to push his program relentlessly regardless of the consequences.”
