Part 2/7:
China's banking sector is facing an acute credit crisis, rooted in an accumulation of bad loans primarily from the real estate and industrial sectors. Banks had previously leaned on a profitable lending strategy that enabled them to offset such bad loans. However, post-reopening realities have shown that these sectors may not rebound sufficiently for banks to recover profitability.
In 2023, credit demand dwindled, leading to a situation where banks were unable to find enough customers willing to borrow, which mainstream media suggests is the primary reason for current conditions. However, this perspective doesn't account for deeper issues within the banking system, as the underlying data underscores a growing concern regarding the quality of loans on bank balance sheets.