China’s local bailout funds

CHINA ADVISORY - Report 12 Feb 2020 by Andrew Collier

China is gradually improving the economy’s ability to handle defaults. Beijing is designing various mechanisms for allowing failure of both companies and securities. In a previous note, we discussed the growth of local asset management companies. Here, we look at another program – local government bailout funds for distressed corporates. Our conclusion is that the central government is encouraging collaboration between local state and private firms to provide capital to bail out failing firms. This is likely to lead to increasing privatization of the bailout funding mechanism.

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