PBOC Raises Billions To Bail Out Chinese Banks As Property Sector Teeters On Brink Of Collapse

Earlier this month, Evergrande, China’s perennially troubled real-estate developer, announced that foreign lenders had seized more than $2 billion in deposits belonging to one of its subsidiaries in an effort to recoup money owed by the firm. Holders of the company’s bonds (which had been in default for weeks) were apoplectic, and the whole incident has once again laid bare the rot at the core of China’s property sector (even as Evergrande promised to swiftly produce an emergency debt-restructuring plan, something that was seen as a band-aid on a bullet wound).

With the country’s property sector teetering on the precipice (keep in mind, a collapse could have global repercussions on par with the Great Financial Crisis, as we have pointed out in the past)…

…The CCP leadership has reportedly devised a plan to raise hundreds of billions of yuan for a new fund to backstop the country’s troubled financial firms in an effrt to create a buffer against a punishing property sector default.

Here’s more from Bloomberg:

The People’s Bank of China is leading the effort, seeking to shore up confidence in the $60 trillion financial system as the economy slows and a debt crisis in the property industry spreads. The stability fund would dwarf other pools available to bail out troubled institutions and their depositors.

China’s banks have been struggling with mounting bad loans for years (of course, the true extent of the threat is masked by the expansive shadow credit system in China, which relies on debt issued by local authorities that isn’t entirely reflected in national figures). But ratings agencies have stepped up their warnings, despite the government’s best efforts to keep the true extent of the problem under wraps.

Source: Bloomberg

The latest hint at the dire situation in Chinese credit arrived yesterday, with the release of the latest Beige Book data out of China. As Bloomberg pointed out, the survey – which showed a drop in loan demand due to sky-high borrowing costs – paints “a grimmer picture of credit demand in the corporate sector than the slowdown reflected in the official data.” It’s the latest sign that the PBOC’s efforts to cut rates and encourage refinancing at more favorable rates has reached its limits.

Source: Bloomberg

And as lockdowns in Shanghai and elsewhere threaten to derail China’s economy, it appears the CCP has accepted the fact that – as the old saying goes – desperate times call for desperate measures.