The sales in China of bond-like securities backed by nonperforming debt held by banks surged by 46% last year, according to data released by the Japanese government Wednesday, reports Nikkei Asia. This development underscores the risks to China’s economy if there is a string of defaults on securitized products resulting from an extended economic stagnation.
The data was included in the Cabinet Office’s twice-yearly “World Economic Trends” report, which said that China’s current economic situation showed signs of a stalled recovery. If the real estate slump persists, China’s economic growth could potentially stagnate in the long term, going beyond a temporary economic standstill, the report warned.
Investments in real estate development dropped by roughly 10% in both 2022 and 2023. This suggests that property groups have initiated balance sheet corrections that prioritize debt reduction and have placed limits on investments and other forward-looking economic activity.