China's Property Slump Threatens Banks, Local Governments and Long-Term Growth

Property is the heart of China's economy, driving around a quarter of total economic activity. Both banks and shadow banks have shed property exposure recently.

Indirect exposure is still a concern due to links between housing and heavy industry and local governments that rely on land sales for revenue.

Local governments have high debt levels, some of which is held by local banks. Ongoing property slump puts stress on their ability to repay.

Big banks are still healthy but smaller, rural banks are more vulnerable. Authorities have been recapitalizing small banks.

Damage to bank balance sheets from property slump will likely mean less cash to support growth and industrial policy over time.