China state firms account for two-thirds of debt defaults this year — private investment rapidly cools

Reuters

China’s government-run enterprises account for 66.5 percent of total debt defaults so far this year, China’s official Securities Daily newspaper reported on Monday, citing information from the state asset regulator.

Although only six government-run firms have defaulted on debts so far this year, the total value amounted to more than 16.5 billion yuan (£1.8 billion), the paper said.

The State-Owned Asset Supervision and Administration Commission (SASAC) will strengthen the way it monitors maturing debts in the coming three months in a bid to reduce the risk of defaults, the paper said, citing an official with the commission.

China could allow industrial firms to convert their debts into equity stakes as early as next month, with the government now putting the finishing touches to a new plan, the official China Securities Journal reported on Monday.

Debt has emerged as one of China’s biggest challenges, with the total load rising to 250 percent of gross domestic product (GDP) last year. The International Monetary Fund warned in June that China’s high corporate debt ratio of 145 percent of GDP could erode economic growth if not addressed.

But China has grown more reliant on often bloated and inefficient state firms to generate economic growth as private investment rapidly cools, raising concerns over whether it will press ahead with reforms.

Officials have insisted that the new debt-to-equity programme would not be used to prop up so-called “zombie enterprises”, those that would not survive without life support from local banks and governments.

A report released last month by the National Academy of Development and Strategy at Renmin University in Beijing found 51.43 percent of listed steel firms surveyed could be classified as zombie firms.

(Reporting by David Stanway; Editing by Kim Coghill)

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