China initiates inquiry against leading banks following the Evergrande crisis

Beijing: – The ruling Communist Party has initiated inquiries against the country’s leading banks in the wake of the bankruptcy crisis in Evergrande, China’s leading real estate company. This includes the central bank of China as well as the leading state-owned banks known as the ‘Big Four’. Loans to private companies, including government enterprises in China, given by these banks will be investigated. Various economists and analysts have warned that the debt burden on China’s economy is huge, and the economy could crumble under that burden.

The shares of Evergrande, China‘s leading real estate and construction company, have fallen more than 80% over the last year. The company has USD 305 billion in debt and is claimed to be unable to repay. The company has defaulted on three consecutive repayments, and the fourth installment is due next week. However, it is believed that the company will not repay the fourth installment just like the previous three. Sources said that in that case, the company would be declared bankrupt.

Following Evergrande, at least five companies in the real estate sector in China and Hong Kong have been in trouble in the last two weeks. Two of these companies have defaulted on loan instalments, and other companies are giving similar indications. There are indications that this will have a significant impact on the Chinese economy. Real estate and related sectors account for about 30% of the Chinese economy. On the other hand, it has also been revealed that most of the bad loans given by Chinese banks are in this sector.

Against this backdrop, it is noteworthy that the Chinese regime has launched an investigation into its major banks. According to the Chinese newspaper People’s Daily, 25 major banks in the country will be investigated. The probe will be carried out by the anti-corruption unit of the ruling Communist Party, for which 15 teams have been formed. Over the next two months, the teams will scrutinize loans from 25 Chinese banks.

Earlier this year, it was observed that the debt burden was rising sharply, and the credibility of the private sector was on the decline. The debt burden in the Chinese economy is said to be more than 280% of the GDP. More than 160% of these loans are in the private sector. China‘s state-owned banks and local administrations began unrestricted lending after the 2008-09 recession. Although this has now slowed down, the disbursement of loans has not stopped completely. Many economists and analysts have warned that China’s banking sector could collapse under the debt burden.

However, the Chinese regime does not appear to have taken any steps to reduce the debt burden and its risks. On the contrary, China’s ruling communist regime has been trying to tighten its grip on private industry in the last few months. For this, new stringent rules have been implemented, and private companies have been directed to provide more funds for the public and social work.