Property defaults may cause localised crises in China

Significance

The outcome of China's real estate credit crunch is of keen interest to the leading players in China's Party-state and provinces, to foreign financial institutions seeking to deepen their presence and profit base, and to foreign governments watching the progress of China's influence abroad. China's real-estate developers dominate Asian high-yield corporate bond issuance.

Impacts

• Property-related lending tends to be geographically local, limiting contagion risks, but this does not guarantee financial stability.
• Data gaps create uncertainty, and even the most advanced models cannot capture the lending relationships that create second-order effects.
• Financial institutions investing in China will need better intelligence and due diligence on business partners and growth prospects.
• Direct foreign exposure to Chinese property is too small for global contagion, but could add to the turmoil related to Russia and COVID-19.