Is China’s economy about to collapse?

Well China is one of the largest economies in the world they are fighting to overtake the
US dollars the world’s reserve currency. They are responsible for manufacturing 20% of
the items that we use day to day. And they are without exaggeration at risk of a complete
financial collapse which of course would affect the rest of the world.
China’s economy is facing a dangerous cocktail of stalling growth, high unemployment.
Spreading mortgage payment strikes and continued Covid shutdowns that threaten to
explode with serious social and political consequence.
After a strong start in early 2022, the largest COVID-19 wave in two years and China’s
zero-Covid policy have disrupted China’s growth normalization. The repeated lockdowns
have laid low the economy over recent months, leaving many people unemployed and
underemployed, especially in services industries. The jobless rate of people ages to 16 to
24 in cities reached 19.3 percent in June, the highest since Beijing started to measure in
2018. The lockdowns also have interrupted factory production, jumbling supply chains
and delaying the shipments of goods to rest of the world.
Another problem causing collapse is Real estate. Chinese real estate defaults continue.
The property crisis has reached dangerous level. Last year, Evergrande, China’s second-
largest private property developer was close to bankruptcy. The Chinese preferred to
invest their money in real estate as a safety net causing the real estate market to increase
double digits year over year. The urbanization 70% of the country’s wealth being tied to
the property market. People believed housing market was such a good investment that
they would buy a property and could always sell in the future for a profit. At that point
property values were rising so high. The Evergrande property model is essentially a Ponzi
scheme, where the company collects cash from the pre-sale of an ever growing number of
apartments, plus hundreds of thousands of individual investors and uses the cash to fund
further sales by accelerating construction in progress and funding down payments. But
when the market slows, those incoming streams of cash start to fall behind the growing
arc of cash demands. Evergrande now has about 800 unfinished projects and there are
about 1.2 million people waiting to move in. Now the property crisis has reached the
point where millions of Chinese purchasers have stopped paying their upfront mortgage
payments. Chinese homebuyers’ rapidly escalating boycotts on mortgage payments have
spread across at least 301 projects in about 91 cities, with the value of mortgages that
could be affected swelling to an estimated 2 trillion Yuan. About 70% of household
wealth in China is invested in real estate.
Another problem, China is experiencing is bank runs. People cannot get to online
banking and they cannot withdraw money from ATM’s. Electronic payments are not
going through, but the worst part is they are allowing funds to be deposited into accounts
that people cannot get access to. It is becoming less safe to deposit cash in China’s banks.
The entire banking system, including the big four state-owned banks, Yuzhou Xin Min
Sheng Village Bank, Shangcai Huimin County Bank, New Oriental Country Bank of
Kaifeng and Zheceng Huanghuai Community Bank told their customers that withdrawals
had been stopped due to internal maintenance. Later, it emerged that the banks were at
the center of a financial fraud probe. Over this situation, more than one thousand angry
depositors, who have been protesting for access to their frozen funds, faced off with the
police in Henan province leading to a violent clampdown. China is likely to have a
massive bank run which will collapse the banking and monetary system, thus further
devastating the Chinese economy.
Tianlei Huang, a research fellow at the Peterson Institute for International Economics in
Washington said “The Chinese economy is in a very bad shape now.” Due to these
dilemmas it seems like China’s economy is about to collapse if problem will not fix soon.