Defaults in China - how the state handles financial failure

CHINA ADVISORY - Report 10 May 2019 by Andrew Collier

As liquidity tightens in China there is a likelihood of increasing pressure on corporates that could lead to a rise in defaults. We look at a number of measures to understand what those pressures currently are and what methods Beijing is using to resolve them. Our conclusion is that China increasingly is creating institutionalized and formalized methods for disposing of non-performing loans, and defaulting companies and securities. However, the success of these methods will depend on a) the willingness of the state to price debt accurately; and b) the capacity of the private sector to absorb it.

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