Two years ago, officials began to tackle the mess. They clamped down on an unruly shadow banking sector, where murky platforms linked borrowers with lenders willing to hand over money in exchange for big returns. They allowed more bankruptcies, hoping to send a message that companies that spend recklessly will be allowed to fail. State-backed banks were told to pull back on easy cash for state-owned enterprises and rein in risky lending. Beijing then cut much of the financial assistance that local governments had once enjoyed.
As a result, money has become harder or more expensive to come by for many companies. In May, Chinese regulators seized a bank, Boashang Bank, for the first time in two decades. In response, smaller banks across the country raised their rates for lending to riskier banks and companies. This, in turn, put more pressure on companies that needed financial help.
But regulators are walking a tightrope. Slowing lending has contributed to faltering economic growth. Beijing continues to look for ways to pour fresh money into the financial system even as it tries to clean up the mess left behind by some of its biggest borrowers.
“You can take the fuel out of the car, but that’s going to create problems,” Mr. Wright said. “You can’t make the car go at the same speed if it’s powered by something different.”
While most of the lending comes from banks, Chinese borrowers have increasingly turned to the bond market to get money they need to run their businesses. Now the bill is coming due.
According to SP Global, Chinese companies must pay back $90 billion in debt denominated in American dollars, meaning the lenders are global companies and investors outside China. In 2021, an additional $110 billion will come due.
At home, Chinese companies will have to pay $694.6 billion to bondholders next year and $706 billion in 2021.
Article source: https://www.nytimes.com/2019/12/12/business/china-default.html?emc=rss&partner=rss
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