Usually the defaults to the bank loans and bankruptcies are quite common but the quantity of amount borrowed as loan by the realtors in China caused the panic. The Chinese News service reported that Zhejiang and Xingrun real estates over 2.4 billion to Banks and 1.1 billion Yuan to private investors. Subsequent to these the real estate sector of the Shanghai stock exchange fell down by one percent
While some analysts are trying to reassure by stating that there will be no domino effect, it certainly begs to believe, but nothing is less certain ... Others point out, however, that real estate developers active in the Zhejiang region face serious difficulties last year, battered by intense speculation, including Ningbo and Wenzhou, two cities that have seen property prices strongly fall.
China's real estate market is showing signs of slowing since the end of last year, mainly because of measures taken by the authorities to contain prices. Many experts also believe that the failure to pay Chaori Solar, occurred on March 7, is related to the Chinese authorities' desire to impose greater rigor in the functioning of credit channels.
Another notable element according to banking and industry sources, many banks have reduced up to 20% of their loans to certain industries. They are worried due to the financial health of these sectors, which tends to be oversized in China.
In September 2013, the Chinese central bank had said for his part that the loans granted in August in the Middle Kingdom had almost doubled in a month, reaching 1.570 billion Yuan. But even more serious element is only 45% of them are bank loans and the majority of loans are informal credit (shadow banking), which already concerned at the highest point to the analysts.
In June 2013, already, the rating agency Fitch indicated that a bursting of a credit bubble unprecedented in the history of the modern world could explode in China.
The Chinese interbank market, on which financial institutions lend money daily , was facing a severe shortage of liquidity,. Chinese Central Bank had injected 17 billion Yuan (2.8 billion Euros) in the banking system.
In February 2013, we had already talked about our fears of analysts. These are alarming excessive growth of bank loans to the private sector, and the loans outside the formal sector were more and more and went up and difficult to repay. These lead to the high level of bad loans held by Chinese Banks.
Hence the Monetary authorities and Chinese policies now wish to terminate the very rapid credit growth in recent years. A situation that pushes the government to "clean up" the banking market, closing the valve to riskier institutions, a policy may lead some into bankruptcy.
(to be continued)