China's GDP growth has plummeted.Production only grew by 0.4% year-on-year in the second quarter of 2022 (the quarterly contraction was -2.6%).This has been the worst growth rate since the first wave of covid in 2020. China's economy is suffering a slowdown that, to make matters worse, coincides with the growing threats of a real estate sector that is already the 'Achilles heel' of the Asian giant.To the growing defaults among Chinese promoters, now the voluntary non-payment of mortgages of many families is added.Both events are testing the country's banking sector (creditor of households and developers), which has been responsible for oiling and keeping the economy afloat in recent years.Two coins of the same face.On the one hand, with regard to the economy in general, the official data released by the National Statistics Office (ONE) has been much worse than analysts expected, who predicted a contraction of 1.5% in said quarter, compared to 2.6%.On the other hand, the controlled implosion of the real estate bubble is becoming a growing risk for the Chinese economy.Controlling the explosion of such a large sector (around 20% of GDP) in a slowing economy is a landing that not even the best stunt pilot can guarantee.Societe Generale: "The risk is that this situation could trigger a vicious circle of a new drop in home sales, more defaults (or even bankruptcies) of developers"To the problems of dozens of promoters, now another issue with unpredictable consequences is added.Thousands of Chinese families have started a kind of 'strike' in which they refuse to continue paying their mortgage loans due to the lack of certainty about the future of their homes.Many real estate projects are being paralyzed in China due to lack of liquidity of some construction companies and developers, which is causing the mobilization of a good part of the citizens who had deposited part of their savings (and paid month after month) in these projects."In particular, the recent mortgage payment strike by homebuyers in more than 20 cities is a dangerous piece in the debt domino, the toppling of which could set off a vicious cycle with a further drop in home sales." homes, more defaults (or even bankruptcies) of promoters and a large increase in non-performing loans in the banking sector," warn economists at Societe Generale in a report published last Friday.The price of housing has already been falling for ten consecutive months.Added to this alert is Zhu Guangyao, who was deputy finance minister between 2010 and 2018, who warns that "preventing the risk of a 'hard landing' in the real estate sector must be one of our priorities and receive serious attention", according to Bloomberg.Local governments should handle these mortgage boycotts well and "be strictly on guard to prevent them from spreading and triggering a banking crisis," said Zhu, who is now a State Council adviser.The real estate situation is getting worse.The problems in this sector, which touches practically all the tentacles of the Chinese economy, are a serious threat to the weakened economy after a disastrous second quarter (with part of the country confined and subject to restrictions).On the one hand, "the income and employment situation remained difficult. Income growth slowed from 6.1% to just 2.5% nationally and from 5.7% to just 1.7 % in urban areas In June, the general unemployment rate fell from 5.9% to 5.5%, in line with the level of February, but still notably higher than at the end of 2021. What is more worrying , the youth unemployment rate increased even more from 18.4% to 19.3%", they warn from Societe Generale.More seriously, the People's Bank of China's crowd-sourced survey of depositors on 'confidence in their future income' and 'future employment prospects' plummeted to historically low levels.Meanwhile, home sales and the sector continue to weaken "given the terrible financial and financing conditions of developers, investment and home construction, which need a much stronger and sustained recovery in home sales. In June , all the construction indicators deteriorated: the beginnings and completions of housing that contracted by more than 40%", explain the economists of the French investment bank.Analyzing in more depth the strike of the families that have stopped paying their mortgage loans, it can be seen that almost all the projects belong to the promoters that already have financial problems.According to calculations by Societe Generale, the total mortgages attached to all the developers in difficulty amount to about 2 trillion yuan (about 300,000 million euros), which is equivalent to just under 1% of all bank credit, a percentage that seems small at first glance, but it is more than enough to complicate life for a banking system that has many assets of questionable quality on its balance sheets: "The risk is that this situation could trigger a vicious circle of a new drop in home sales, plus defaults (or even bankruptcies) of developers".To reduce this risk, the People's Bank of China and regulators are loosening monetary policy and mortgage lending again.China is huffing and puffing at the same time.Try to get the economy to reduce its indebtedness and dependency on real estate but without causing an earthquake in the economy.A kind of controlled slow-motion 'creative destruction' whose result is unknown.UBS economists note in a note that "regulators have recommitted to supporting developer financing in bond markets and have asked banks not to withdraw loans for builders and developers. On the other hand , dozens of cities have lowered down payment requirements and relaxed home buying restrictions.Yet such policy easing has so far been insufficient to turn the tide of the housing market...The lack of clear solutions and leaves for troubled developers has also affected market confidence.Alicia García-Herrero, an economist at Natixis, points out in a note that "even with the government's support measures, the number of housing transactions (in the 30 largest cities in China) still contracted in June by -9.3 % year-on-year The recent increase in mortgage delinquencies adds to concerns about the financial health of the real estate sector, which does not bode well for future investments in the sector," warns this expert on the Asian economy.The mortgage boycott or rebellion may be the spark that lights a larger fire.On the one hand, more families with their homes under construction could join this movement.On the other hand, the weakness of the Chinese economy is already a risk for the delinquency rate per se.The risk is that "there will be a large increase in non-performing loans in the banking sector. Even in a benign scenario, it is very likely that home sales will continue their transition from off-plan projects, which currently represent around 90% of total residential sales, to the house already finished. This transition can generate additional and substantial challenges in the cash flows for all the promoters", sentence from Societe Generale.Charlene Chu, one of the most prestigious rating analysts, warned about it a few days ago."Defaults at Chinese promoters have only just begun."This expert explained it in a simple but very enlightening way.It is true that banks lend money to developers in exchange for a guarantee or collateral (usually they are completed homes or under construction).However, this does not serve to avoid a crisis, since that collateral can quickly lose its value and generate a snowball effect in the sector.This is exactly what could be happening now, a problem made worse by the mortgage boycott of thousands of Chinese."This is where things could start to get much uglier" if lenders begin to revalue that collateral downward, Chu said.