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On Investors’ Minds - APAC Edition
17. How can China’s property market recover from current concerns? (archived)
Aug 30, 2023
This podcast discusses the impact of sluggish sales in residential properties on Chinese banks, the potential effects of a slowing Chinese economy on global inflation, and investing opportunities once the Chinese economy starts to recover.
00:50
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Quick takeaways
- Chinese banks have a higher level of capital than smaller regional and local banks, providing a buffer against potential losses in the real estate sector.
- The decline in China's Producer Price Index could potentially lead to global deflation and impact commodity-exporting countries like Australia.
Deep dives
Chinese banking sector at risk of systemic crisis
The real estate sector in China is facing challenges, with pressure on developers and concerns about liquidity and potential default. While exposure to developers and mortgages varies among individual banks, the industry level data shows that 5.7% of bank loans in Q1 2023 were towards property developers and 16.7% to mortgages. However, larger banks have a higher level of capital than smaller regional and local banks, providing a buffer against potential losses. Chinese banks have also made sizable loan loss provisions, and there is an expectation that authorities would support state-owned banks in case of severe stress on the banking sector. Overall, the long-term profitability of the banks appears to be at greater risk than the financial sector as a whole.
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Discover
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