Debt defaults to rise as China focuses on tackling bloated state enterprises, local governments in deleveraging drive
Guo Shuqing, China’s top financial regulator, says the focus is on state companies and local governments in the government’s structural deleveraging drive to ward off future financial risks and even though debt defaults could rise they will be kept to manageable limits
Debt defaults at Chinese companies could rise as a consequence of Beijing’s unrelenting drive to trim leverage and debt levels at state-owned enterprises and local governments, according to the country’s top financial regulator.
As a result of the monetary tightening, at least 20 companies have failed to meet bond or loan repayment obligations so far this year.
Bonds worth about 20 trillion yuan are set to expire by next year, triggering fears that the number of defaults could spiral as China’s tight leash on liquidity can make it difficult for indebted firms to access fresh funds.
Financial regulators were focusing on state companies and local governments in their “structural deleveraging” drive to ward off future financial risks, Guo Shuqing, head of the China Banking and Insurance Regulatory Commission, told the Lujiazui financial forum on Thursday.
Some local government bodies, banks and enterprises had failed to take the campaign seriously to trim debt levels and cut excessive production capacities, Guo said, criticising those taking a wait-and-see attitude in disposing off non-performing assets and “zombie” enterprises.
Businesses that received cheap funding but generated losses or did not generate enough profit to cover their interest payments are often defined as zombie companies.
