China is facing a major banking crisis, a year after the US. The Chinese regulator has started to absorb 40 rural banks in an attempt to stabilize the financial sector. Unfortunately, the situation remains uncertain.
More than a year after the banking crisis in the United States, a new one is breaking out in China
Since the beginning of 2021, the Chinese stock market has been in a clear downward trend, recording a loss of more than 40%. Faced with this situation, in January 2024, Premier Li Qiang proposed to support the markets with $270 billion from offshore accounts of state-owned enterprises.
China is facing a major real estate crisis in particular.marked by a slowdown in sales and an excessive supply of housing.
This situation has been exacerbated by government policies aimed at slowing speculation and stabilizing real estate prices. Several large companies involved in the real estate sector, such as Evergrande, have been placed in receivership due to their inability to repay their $300 billion in debt.
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Today, Small rural banks in China are facing a major crisis due mainly to the accumulation of non-performing loansBeing heavily exposed to the real estate market and local debts, these banks see their future becoming uncertain.
To stabilize the situation, The Chinese regulator recently initiated the absorption of 40 banksmainly in Liaoning province northeast of Beijing, in just one weekThis means that these banks will merge with others or be acquired by larger entities.
In the mid-1980s, a similar crisis had erupted in the United States, leading to the absorption of 1,000 small lending institutions. However, Never before during this crisis have so many institutions closed so quickly.
According to The Economist, there are 3,800 rural banks in China holding 55 trillion yuan, or about $7.5 trillion, which would represent 13% of the country's banking system. Some of these institutions reportedly revealed that 40% of their holdings were made up of its risky loans..
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How could this benefit Bitcoin?
In March 2023, a banking crisis broke out in the United States, leading to the bankruptcy of several banks, including Silicon Valley Bank (SVB) and Signature Bank.
To prevent the crisis from spreading further, The Federal Reserve (Fed) stepped in to stabilize the situation by guaranteeing customer deposits and providing emergency loans worth billions of dollars..
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This panic environment had greatly benefited Bitcoin. Being a decentralized network allowing the transfer of value without a trusted third party, It has established itself as a logical alternative to centralized banks that take risks with their clients' funds..
During this crisis, the BTC price increased by 50%, going from $20,000 to $30,000 in 1 month.
Although Bitcoin is less popular in China than in the United States, A similar crisis in the country, threatening to spread internationally, could lead to increased distrust in banks, thus benefiting BTC and its price..
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Source: The Economist
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First attracted by the lure of gain, I am now trapped deep into the rabbit hole. With no way out, I have no choice but to share my knowledge and transmit the passion I have for the blockchain universe. I am also the creator of Adopt a Block, an educational site dedicated to Bitcoin.
Marius Farashi Tasooji
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