Stagnating Chinese Property Market Increases Default Risks

China’s property sector is the main threat to the stability of the world’s number-two economy, say economists, amid slowing growth in home prices and reports that a large mainland property developer is unable to repay its bank loans.

“As demand slows, more and more developers will feel financial strain. I’m concerned the default will trigger a string of similar distressed situations across weaker companies in the property sector,” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole.

“Banks are heavily exposed to the property sector, so if there are a large number of defaults, banks would have set aside more funds for bad loans and would likely have to slow credit expansion. If those defaults make banks more risk averse, this would only slow growth further, as China’s growth is funded by debt,” he added.

CNBC

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