China’s Mortgage Crisis Rising Interest Rates Will Hurt Consumers
China’s consumers are rapidly leveraging up. This is a policy encouraged by Beijing, which views the consumer both as “underleveraged” and also not part of China’s “official” credit system. Chinese institutions are rapidly offloading credit – both good and bad – to the consumer. This is often through securitization in financial products (WMPs) or in informal lending through reverse mortgages on collateral such as housing or real estate. We examine here one form of credit, the mortgage industry, where we believe consumers may be facing a cash crunch due to rising interest rates. Plus, informal loans through the shadow banking market are falling due to regulatory pressure. We believe rising mortgage rates, along with less liquidity, could lead to bad debts of at least one-quarter of mortgages at small and medium-sized banks, which could cause a crisis in the property industry.
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