China’s bad loans to hit a record high due to the Coronavirus pandemic

China’s bad loans to hit a record high due to the Coronavirus pandemic

Beijing: The Coronavirus pandemic has severely hit China’s economy, and the bad loans in the country have reached an all-time high. Even in the 1st quarter of the year that ended in March, the bad loans on commercial banks had risen to a whopping $367 billion, informed the regime. As per data from the administration, within three months since the Coronavirus outbreak occurred, the bad loans on the Chinese banks had surged by a staggering $28 billion.

The severe effects of the Coronavirus pandemic are beginning to surface on the global economy, and most nations of the world are facing an economic downturn. Only a few days ago, Japan and Germany announced that they were in recession while the European countries and the US also show signs of soon announcing a recession. However, China, the world’s second-largest economy, is unwilling to disclose the status of its economy to the world.

Last week, Chinese Premier Li Keqiang said the GDP target had not been set this year. The Premier’s remarks are considered an admittance to the inconsistencies in the Chinese economy. The Chinese administrative systems informing about the bad loans reaching record-high levels, right after the admittance, assumes much significance.

The China Banking and Insurance Regulatory Commission has recently released the 1st quarterly report. According to the report, the bad loans on the commercial banking sector was nearly $340 billion. This figure has risen to $367.7 billion towards the end of March. China has around 134 prime commercial banks, and their non-performing loan (NPLs) ratio was reported as 2.5%. At the same time, the NPL ratio for rural banking institutions stood at 5%.

The average NPL ratio of the banking industry is 2%. Nevertheless, the commercial, as well as rural banking institutions, appear to have crossed the average already. Economists and analysts believe the ratio the Chinese banks have presented were only figures shown on paper, although the actual rate may be significantly higher.

The Chinese administration asserts the spike in the bad loans in a span of merely three months is due to the impact of the Coronavirus pandemic. Even so, international financial institutions as also analysts have consistently brought the fact to attention that the levels of China’s bad debt and NPLs, was nothing new.

In the last decade, after the economic slowdown, China had permitted the banks in the country the liberty to offer loans in significant amounts to improve the state of the economy. The banks distributed excessive amounts of credits after the issuance of instructions from the Chinese regime. The entities, availing the loans, comprised mainly of state-owned companies and administrative systems. Furthermore, the disregard towards ensuring the repayment of the loans has attributed to the mismanagement faced by China’s banking sector.

The Chinese economy began a downward spiral given the trade war the US President, Donald Trump, had initiated two years ago and the Covid-19 after that. The ruling Chinese Communist Party, however, was consistently trying to suppress the information. Besides, the global backlash against China over the Coronavirus pandemic is growing further with the addition of global pressure.

Also, the leading world economies have indicated lessening the dependency they had on China so far. The alteration may deliver a massive blow to the Chinese economy. Therefore, China appears to have begun to present the negativities in its economy before the world slowly.

The state of a nation’s economy is mostly considered to be dependent on its banks. The rise in the ratio of the NPLs is an extreme threat to any nation’s economy. After the financial transactions and trade come to a standstill, the debt cannot be repaid, and as a result, the economy begins to slide. This trend has been observed in China for the last few years. International financial institutions and economists fear China’s banks would go bankrupt.

The Coronavirus crisis has accelerated the process, and the challenge befalling the Chinese banks has become much worse. Moreover, few economists have already warned that the crisis faced by the banking sector and economy of China, which is the second-largest in the world, would not remain restricted to just Beijing but would hurt the global economy.

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