At a time when the world is yet to recover from the economic downfall of the Covid-19 pandemic, the virus’ country of origin, China is increasingly staring at the prospect of an imminent financial crisis pulverizing the country’s meek government-controlled financial institutions, with ripple effects of the same being felt in almost every Chinese household. It will not be an overstatement by far to say that China, which is accused of gross economic cosmeticizing, has lied to its own people about the country’s economic and financial prowess. This has led to Chinese people living lives to the fullest, mostly at the expense of China being put on the edge of multiple financial crises every now and then.
Now while China has learnt the art of evading some of the crises, an impending financial disaster, many believe, will be impossible for the Chinese Communist Party regime to deflect. According to an op-ed published by the South China Morning Post and authored by Andy Xie, Chinese millennials are crazily buying properties, mostly at debts, with them thinking that they are investing in them for a better future. However, such investments can go quite the opposite way in no time, setting the paper dragon on fire with a massive financial crisis, induced by fragile systems which are overloaded by debts which people are unable to pay due to negligible property appreciation, or perhaps even depreciation.
All of China’s millennials are buying properties amidst a Covid-induced global, and of course, national slowdown with the single hope of the prices of such properties escalating. Chinese millennials, to put it simply, are investing in real estate thinking that the prices of their properties will most certainly go up. However, the Chinese government is in no position to ensure that such price appreciation, in fact, does take place. China’s youth, therefore, are blindly betting on properties without them having the slightest idea that it could all come down crashing in a short span of time for them.
The SCMP report stated that China’s household debt has roughly quadrupled in the past five years to 62 trillion yuan (US$9.4 trillion). While detailed statistics are sketchy, data from some banks suggest that millennials are the main driver and betting on property appreciation the main motivation. The generational concentration makes it a higher risk to financial stability. When growth is low, or deliberately overstated by the government, rapid monetary expansion to prop up asset markets (real estate in this case) leads to rising debt, which makes the financial system increasingly fragile and susceptible to a crash. In China, the same is happening at a breakneck pace, and the debt-induced spending of millennials in a single sector is acting as a catalyst to the impending disaster.
Already, China’s shadow banking sector suffered a huge jolt when it was revealed in June-July this year that China is at the centre of the discovery of the biggest gold counterfeiting scandal in human history.KingoldJewelry Inc, China’s largest privately-owned gold processing and jewellery company headquartered in Wuhan, had taken a loan of more than 20 billion Yuan, that is, 2.8 billion dollars with pure gold as collateral. But, when the shadow banks claimed the pure gold after the company was unable to pay back, they found that what the company claimed as pure gold is actually not gold. The 83 tons of metal which the company claimed as pure gold was, in fact, gilded copper. This is equivalent to 22 per cent of China’s annual gold production or 4.2 per cent of China’s gold reserves as of 2019. In short, at least 4 per cent of China’s official gold reserves were found to be fake.
Internally, the Chinese economy is suffering blow after blow, even as the Xi Jinping regime works overtime to coverup every financial mess in China and overstate the paper dragon’s economic growth and strength. The SCMP report also stated that funds from shadow lenders probably exceed 10 trillion yuan. When the shadow banking system gauges that the Chinese property market is entering a downtrend, a chaotic unwinding is likely.
Essentially, China painting a rosy picture of its economy and financial systems is going to result in an unmitigated catastrophe for the CCP. While propaganda can relieve pain in the short term, an economic system built on a foundation of lies, deceit and coverup cannot be stopped from unwinding and ultimately collapsing. China’s millennials are single-handedly ensuring that their country’s financial systems are ruined, subsequently resulting in an unavoidable economic disaster for the paper dragon.