China anticipates an increase of sour loans for 2020 that caused the government to expect a 1.5 trillion yuan value of bad debts and other distressed assets up to 1.4 trillion yuan from 2018 loans. An indebted Chinese national also revealed that he deferred on payments for rent of office space along with other businesses in Shanghai.
According to business owner Zhu Bo, the economic crisis caused by the pandemic has led him to defer in payments for rent of his office space in one of Shanghai's oldest commercial districts since January. He claimed that business losses started to pile up as halted projects caused uncertainty on the financial stability of his business.
A report by the South China Morning Post revealed that prominent customers have planned to mitigate their marketing spending for the year to alleviate the financial challenges that the pandemic brought to the country. Some businesses have considered laying off employees to cope with rental payments and other deferred obligations due to lower financial yields.
Zhu claimed that the Chinese people's lifestyles may have resumed, but the economic crisis continues to cause business troubles across Shanghai. He also perceived that an economic solution may not generate positive results in the next months including the alleviation of financial shortage in the advertising industry. However, the report claimed that investors have investigated the financial troubles of China and considered the pandemic as an opportunity to invest in global distressed debt markets.
Businesses that defaulted in their loan payments are considering bankruptcy declarations and sell their proprieties to investors at a lower rate. The report claimed that the industry dominated by non-performing loans (NPLs) from the real estate sector is expected to grow significantly this year.
The Chinese economy, however, is expected to shut down or deplete at a significant rate in the first quarter of 2020 for the first time in decades. Although Chinese businesses have started to run their ordinary courses, the gross domestic product growth has dropped significantly to 4.8 percent in 2019.
According to the head of China's global markets at investment bank UBS May Yan, bad debts in China could result in a bad debt formation totaling at 3.45 trillion yuan. She perceived that if GDP growth fell by 3.2 percent, then the NPL yields could reach five trillion yuan by the end of 2020.
In other news, Fortune reported that workspaces for start-ups and entrepreneurs provider WeWork had vacancy rates of 36 percent in Shanghai alone, 65 percent in Shenzhen, and 79 percent in Xian. The report claimed that China's speculative property development is vulnerable to a collapse in asset prices.
