Gorlach global: the multitude of crises is becoming a problem for china | comments | dw

Events are unfolding at a rapid pace these days: hundreds of thousands of people have stopped paying the installments for apartments they once wanted to move into. In China, it is not uncommon to pay off a property while it is still being built. But due to the high indebtedness of several developers who financed their projects with cheap loans, it is currently questionable whether these apartments will ever be built. One of the largest developers of this kind, Evergrande, has been in crisis since last fall and is now insolvent.

In Henan province, hundreds of thousands of savers have been cheated out of their deposits: Four banks lured people from all over the People's Republic with high interest rates. In reality, the money was invested riskily. Now deposits worth the equivalent of six billion U.S. dollars have been lost – nothing has been paid out since April. For two weeks, savers have been demonstrating in front of bank buildings in Henan. Police cracked down violently because public protest is banned in China. It didn't help that protesters carried Chinese flags to show their patriotic sentiments. Because at the same time they chanted that the local government was responsible for the fraud.

People have traveled from far-flung parts of the country to demonstrate in front of the People's Bank in Zhengzhou

Has Beijing overstretched itself?

Now there is further bad news: More and more loans that Beijing has granted as part of its New Silk Road initiative can no longer be serviced. Since 2013, China has invested around $840 billion to build roads, ports, dams and power plants around the world. With this "project of the century," as China's ruler Xi Jinping has called it, Beijing is pursuing primarily political goals, not economic ones. Many loans were therefore also granted according to political criteria. A more than courageous program in view of the risks taken. The question now is whether Beijing has not made a mistake with this global initiative.

The Financial Times reports that more and more countries are asking Beijing to defer their loans because they can't pay them anymore. In Asia, Africa and Latin America, economies are set back years by the COVID malaise. This is probably another reason why loans worth around 52 billion will have to be renegotiated in 2020 and 2021, whereas in 2019 the figure is expected to be much lower at 16 billion US dollars. In total, according to a study by the New York-based research institute Rhodium, 118 billion, or 16 percent of the total volume of all loans, is currently on the line.

In order to plug the credit holes of its debtors, the People's Republic often grants new aid loans, thereby increasing its own problem. Rising interest rates around the world make it more likely that more and more debtors in the world's poorer south will become insolvent. At the latest, the effects will also be felt in the northern hemisphere. What the triple crisis of banking, real estate, and credit will end up doing to China itself is best not imagined. It will shake the foundations of social cohesion and the CP's dominance.

Home-made crises

The credit crisis may be caused by foreign and security policy, but the other two are homemade: Until recently, China's real estate and banking sectors were not regulated at all or were poorly regulated, which led to the credit excesses and manipulations. The leadership in Beijing has tried to consolidate the real estate sector with stricter rules over the past year, but this has been done with the intention of expanding the supremacy of the party, which has a stake in the companies, rather than protecting the people.

DW columnist Alexander Gorlach

But now that the two crises have merged, State President and Party leader Xi Jinping has no choice but to also reach out to people cheated out of their savings. The 400.000 savers who were defrauded in Henan are to receive a payment equivalent to 7.400 US dollars received. But these three billion US dollars will not be enough to appease those who have been cheated.

For Xi Jinping and his nomenklatura, the protests that are currently breaking out all over the country are a novelty. What's new is that the people don't care about the disadvantages they face as a result of their protests. Respect for the government is gone since it came out that the provincial government in Henan used the Corona warning app to stop people from protesting.

Corruption and mismanagement continue to flourish

Xi Jinping took office in 2013 with the promise to fight rampant corruption. Even then, he was accused of using his anti-corruption campaign only to throw political opponents in jail. Ten years later, corruption and mismanagement are still thriving. Xi's record looks like this at the moment: The People's Republic is still groaning under the government's zero-COVID strategy: supply chains are disrupted, entire industrial zones closed. Economic data have plummeted, and youth unemployment is at 18.4 percent, the highest it has been in a long time.

The housing market in China was seen as a natural investment market for the middle class. Prices continue to rise because of them. Developers could finance themselves so cheaply and build more and more houses on credit. These are now losing value by the minute. But where assets are destroyed, unemployment and impoverishment threaten, the revolt is not far away.

For now, Xi seems determined to solve all problems with money. In view of the gigantic financial volume that could swallow up three times China's crisis, however, it cannot be ruled out that violence will be used against the country's own people. In any case, the middle class, whose social security is in danger, could start protests that the country has not seen since 1989.

Alexander Gorlach is a Senior Fellow at the Carnegie Council for Ethics in International Affairs and a Research Associate at the Internet Institute at Oxford University. After spending time in Taiwan and Hong Kong, this region of the world, especially the rise of China and what it means for the free world, became his core theme. He held various positions at Harvard University and the University of Cambridge.

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