The Truth Behind China's Private Enterprise Support: A Financial Trap

hi I'm dong Shong welcome to digging to China where we explore China in depth to review unique perspectives recently Shin Bing has been entirely focused on isolating China from the world and perfecting his spiritual cultivation turning a deaf ear to all talks of terrorist this spiritual Pursuit the Great Leap Forward in science and technology So lately the two words private Enterprises have been on the Communist party's lips every day first shining held a meeting with private entrepreneurs and once again expressed his support for private Enterprises State media quickly followed up affirming that the general secretary supports private Enterprises offering them some comforting words but if we look into the phrase comforting words for private Enterprises we'll find that over the years shiin ping has handed out quite a few of these every now and then a new promise comes out for private Enterprises they keep taking these comforting pills but there's no real change if anything they are getting hurt that said Shin ping says the medicine work sold economic departments are forced to keep Distributing it to private Enterprises on the last day of February the People's Bank of China the all China Federation of industry and commerce the financial regulatory Bureau the China Securities regulatory commission and the state administration of Foreign Exchange jointly held a meeting on financial support for the high quality development of private Enterprises offering yet another comforting pill to private Enterprises the head of the financial system The People's Bank of China stepped up to guarantee that the financing difficulties for private Enterprises will be solved and that financing costs will remain low this year let me tell you what the People's Bank of China words really mean it means private Enterprises have to prove themselves first build your businesses show you are useful to the country and then we'll support you financially but if you think you can start a small business or run a small Factory and expect to receive preferential Financial Services just because you call yourself a private Enterprise then you are dreaming do you think my interpretation is correct in today's China the definition of a private Enterprise has already changed companies like a byd Huawei and a deep seek can call themselves private Enterprises but if you open a small work shop or a little Factory don't go putting gold stares on your business and calling it a private Enterprise the Communist party doesn't even think you are worthy of that title but I have noticed that over the years years many people especially young people have been deceived by the party rushing into entrepreneurship only to end up heavily in debt their reputations ruined these social issues are actually reflected in Banks bad asset data you may not have noticed but many banks have recently been selling off their nonperforming personal loans let's take a look at the data and see how many young people's dreams have been buried in this figures in February this year financial institutions across the country began selling off their nonperforming personal loans including major Banks like Bank of China China construction Bank China ever brigh Bank pingan bank jangu bank Jong Yan bank and more there are also consumer finance companies like Jaan financial and end Consumer Finance for those who aren't familiar with the situation in China let me briefly explain the country's nonperforming asset Disposal system some of China's non-performing assets are processed using Market based methods for example if a bank has a pile of non-performing assets and wants to get rid of them they can list them on a platform called the bank credit asset registration and circulation Center bacc where asset management companies AMC will bid for them this plan platform BAC is a state-owned financial institutions use it to transfer nonperforming assets let's say a bank has 100 million Y in non-performing loans they want to sell they can set the starting price at 5 million and AMC's will bid eventually someone might offer 6 million to buy it this is how nonperforming assets are disposed of in the market it's because of this platform that we can see how much nonperforming asset processing has been happening in the Chinese financial industry in recent years and from that we can also identify many problems for example let me show you some numbers the BAC has been handling the transfer of personal loan non-performing assets for just four years over these four years the platform has transferred 3481 billion UN in non-performing assets with an annual compound growth rate of 200 30% now what makes up these non-performing assets the latest data from 2024 shows that 15.1% are business loans 55.4 2% are Consumer loans and 29.4 n% are credit card overdrafts can you guess which type of non-performing asset has increased the fastest it's credit card overdrafts think about it why would someone overdraw their credit card only people who can't get loans from the bank will turn to credit card overdrafts because the interest rates on credit card overdrafts are extremely high if you are not in financial distress you typically wouldn't overdraw your credit card so when the amount of non-performing assets from credit card overdraft rise sharply in society doesn't suggest that more and more people are going bankrupt let's also think about the reason China stopped releasing data on dead beats could it be because more people are going bankrupt I can also show you the credit card overdue data released by The People's Bank of China at the end of 2024 the total amount of credit card debt overdue for more than 6 months reached 124 billion un a 26.31% increase year on year this is the highest credit card default amount ever requ reported shiin ping has set yet another record now under what circumstances does a person go bankrupt I believe not all bankruptcies are due to bad habits like excessive drinking or gambling in China many bankrupt individuals are actually young people full of ambition who set out to start business only to be harshly taught a lesson by Society burdened with debts and knocked down it's really unfortunate for these young people people Society needs Innovative use but in China the system doesn't give you much room for error the government doesn't have any safety nets entrepreneurs Bear all the risks themselves for ordinary people's children it's really hard to find success let me share some more data with you how much do you think a bank can recoup from selling a nonperforming loan package if you are a bank and you sell a 100 million un non-performing personal loan package in 2024 how much do you think you'll get the answer is 4.17 million y but if the same package was sold in 2023 the bank would have received 4.58 million what does this tell us it shows that the debt collection business in China is struggling debt collection companies were willing to pay 4 and5 million yen for a 100 million nonperforming asset in 2023 but in 2024 they only paid 4.17 million this drop indicates that their profit from collecting debts has declined here is another sign in 2024 only 60% to 70% of non-performing personal loans are being sold by financial institutions some of these assets are being sold for as low as 40% of the original value and still can't find a buyer in 2024 debt collectors are offering for even lower prices just 3% of the original value this means that for a 100 million un non-performing loan the debt collector is only willing to pay 3 million yen why because even with such a low price it often takes six to seven years to break even this puts a huge strin on their finances highlighting how tough the debt collect business has become it's important to know that these debt collection companies are usually backed by the government making them almost Invincible they prefer personal loan non-performing assets because collecting personal debts is easier than business debts each personal loan in this package typically has about 10,000 yen in outstanding debt so they are generally easier to collect but now even with easy to collect the loans the debt collectors are saying they can't make money this suggests that the datas are so poor that there's nothing left to squeeze out so how bad is the bankruptcy in China right now it's so serious that even the once profitable debt collection industry is struggling Banks can't even sell off their nonperforming personal loans doesn't that seem strange let's look at the books of a listed debt collection company there is a company in China called high nonh high the Capital Management Corporation listed in 1994 stock code 0567 according to their 2024 performance forecast they expect a net profit attributable to shareholders to Fall by 59% to 73% year on year excluding nonoperating gains their net profit expected to drop by 53% to 69% even debt colle action companies are struggling to survive so is the Chinese economy doing well or not to summarize I've shown you data about the transfer of non-performing loan packages by financial institutions and we've identified a few problems first the number of non-performing Assets in the financial system is increasing every year and the increase is significant the rise in non-performing loan package listed on the BAC shows a dramatic increase indicating that asset quality in financial institutions is declining something that typically happens during an economic recession second banks are selling off non-performing loan package for less and less each year and some packages aren't even selling at all the on profitable debt collection industry is now facing major difficulties which reflects the reality that many Chinese people are getting poor there's no money left to squeeze is out and people are living paycheck to paycheck this is why even debt collection companies can't make a profit the third issue is that the fastest growing bad debt in bank's personal loan is a credit card debt this suggests that many Chinese people are at a Breaking Point and are relying on credit cards to get by this situation mirrors what happened in the United States during the 2008 financial crisis when the bad debt rate for credit cards soared due to the recession high employment and widespread bankruptcies now we often look at the credit card bad debt rates to gauge household debt pressure and WEA the national economy is in recession unfortunately this signal is now appearing in China and the situation is worsening day by day this is something we need to pay close attention to especially for young people in China unless your family has significant wealth don't be swayed by stay media encouraging you to start a business not everyone can be a success like deep seekang Wun the reality is that 99.99% of young entrepreneurs will end up at just another name in the bank's bad dad portfolio so don't blondly go into debt when you are just starting out in life sometimes what gets buried with your dreams is your future thank you so much for watching if you find this video helpful please like it a drop a comment below and hit the Subscribe button right here it really helps you to suggest my video to others I'll be back with more content soon until then be well