Beijing – Over the last few decades, China has pursued a policy to grow at any cost. As a result, China exhibited spectacular economic progress. Consequently, China had to borrow heavily; now, the debt burden is beyond China’s reach. Hence, President Xi Jinping steps to reduce the debt burden that becomes cumbersome for China by ignoring the progress of the economy. The effects are surfacing in the form of a decline in the Chinese economy, economists said.
China’s private sector currently has a debt burden of $27 trillion, accounting for about 160% of GDP. Over the past year, the shares of Evergrande, China’s leading real estate and construction company, have fallen more than 80%. The company has a whopping $305 billion in debt and is unable to repay it. The company has defaulted on three consecutive payments. The repercussions have begun to appear on other companies, with many companies signalling to sink debt and debt instalments.
Besides, 58% of over 5000 companies in China have been suffering a heavy debt burden, 45% of which belong to the construction and real estate sectors. This is stated in the report of the financial institution ‘S & P’. The debt burden in China’s construction and real estate sector is estimated at a whopping $5 trillion. One of the main reasons behind this is, considered to be, the vast and uncontrolled debts given by the Chinese regime against the backdrop of the global recession of 2008-09.
With readily available loans, other sectors, including real estate in China, began to build new projects by taking loans in succession. For almost a decade, the ruling regime had upheld a policy of promoting this. However, since last year, President Xi Jinping has taken steps to reduce the debt burden going out of control. Thereby, sectors such as technology, private education, real estate, luxury brands are being targeted in various ways.
Restriction of foreign IPOs in the technology sector, restrictions on private tutoring and related apps, warnings to luxury brands and related artists, and crackdowns on the real estate sector are considered milestones. A few days ago, China began reviewing loans from the country’s leading banks and related transactions. Letting go of the debt of real estate companies and alternatively shoving them go bankrupt is also considered as part of the moves to reduce the debt burden.
‘China doesn’t want growth at all costs, followed by the likely or inevitable financial market crash, which is very much the sort of European-US model,’ claimed Robert Carnell, a senior official at ING group. Carnell also pointed out that the Evergrande crisis could be part of China’s communist regime’s ‘pre-emptive clean-up’ campaign.
Until now, China had been trying to accelerate or maintain its economic growth by spending large amounts of funds it had. However, the Chinese government is not convinced that this model will continue with the growing debt burden and the jolts that come with it. Therefore, despite the political and economic shocks, the Chinese President has not taken any action to curb the crisis in the private sector and the real estate sector, according to media and analysts.
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