The crisis in China may provoke a drop in demand for grain

The decline in the main indicators of China’s economy, exports and imports of goods, and demand for oil indicate that the world’s second largest economy is approaching another crisis that could trigger a global crisis and a drop in demand for grain.

One of China’s largest trust funds, Zhongrong International Trust, which is partially owned by a Beijing-based asset management conglomerate with stakes in many financial sector companies, has failed to meet its payment schedule for almost all of its projects.

After the audit, Zhongrong plans to sell off assets to pay off its debts to investors, which calls into question the future of the trust fund. The roots of Zhongrong Financial Group’s problems stem from the real estate market, as the group has many projects in the development industry, and in 2022 had 11% of investments in it out of $86.2 billion under management.

The crisis in the real estate market in China began in 2020 and has been worsening since then, causing damage to related industries. In July, for the first time in a year, prices in the new construction market fell by 2.4%, in the secondary market by 6%, and in some cities (Shanghai, Shenzhen) by 15%, and in Guangzhou, where Alibaba Group Holdings is headquartered, by 25%.

To reduce turbulence, the Chinese authorities are suspending the publication of a number of economic indicators. Thus, no more data will be reported on the youth unemployment rate, which has already reached 21.3%. Financiers are now waiting for further steps by the regulator to have data to make investment decisions.

Economic problems can provoke social discontent, and some depositors have already held protests outside Zhongrong’s office. However, the government remains committed to its principles, so more and more investors across the country are complaining about visits from law enforcement officials with “requests” not to organize public protests.

Last week, one of the largest real estate companies, Country Garden, also missed a bond payment. If it fails to pay $22.5 million within 30 days, a wave of bankruptcies will begin both in the real estate market and in related markets. This will be a severe blow to the Chinese economy, which has not yet recovered from the default of the developer Evergrande in 2021.

Amid the depreciation of the exchange rate to 7.35 yuan/$, the regulator began to force state-owned banks to increase interventions in the foreign exchange market, cut the interest rate and increased public investment in the financial system. In addition, to support the exchange rate, the regulator is considering simplifying the requirements for foreign exchange reserves of the banking system.

Despite this, the yuan has fallen to its lowest level since 2007, the main stock index on the Hong Kong Stock Exchange is close to a bear market, and the number of bad news for the economy is increasing daily.

Tags: China, grain