The View | China’s banks are trapped between a property crisis and a sluggish economy

The months-long financial drama that culminated in the company being labelled a defaulter in December 2021 unleashed a wave of distress that has spread to some of China’s largest and most creditworthy developers.

While defaults in the nation’s offshore dollar-denominated debt market rose to US$14 billion last year, they have reached a staggering US$37.3 billion this year, data from Bloomberg shows. New house prices in 70 cities have fallen for 11 straight months, while sales among the top 100 developers have contracted on an annual basis for 12 successive months.

In a sign of the severity of the loss of confidence in China’s property market, tens of thousands of borrowers have halted mortgage payments on housing projects that sit unfinished. According to Nomura, developers only delivered 60 per cent of the flats they pre-sold between 2013 and 2020. Not only is the presales model – which dominates the residential market – broken, the threat of social instability and a sharper deterioration in asset quality in the banking sector has become more acute.