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P. 25
BUSINESS A25
Monday 29 February 2016
Vampire attack:
Debt-laden companies imperil China’s economic growth
PAUL WISEMAN market mechanisms work frenzy, they tend to make nese companies involved pecially in a country where
JOE MCDONALD their way.” blunders as they shovel in construction, mining and uncompetitive companies
AP Business Writers On Friday, as finance min- money to companies that manufacturing are often with big debts are often
China isn’t just contending isters and central bankers can’t repay. paying inflation-adjusted owned by the government
with falling stocks, a plung- of the Group of 20 major Buried in bad loans, banks loan rates above 12 per- or have powerful connec-
ing currency and a slowing economies began meet- tend to curtail the credit cent. tions. Officials are tempt-
economy. ing in Shanghai, Zhou Xia- that’s vital to growth. Economists say China must ed to intervene to rescue
It’s got vampire trouble, ochuan, head of China’s For years, China’s debts let uncompetitive compa- vampire companies, partly
nies die and write off their to save jobs.
debts. In developed econ- The state-owned steel-
omies like the United States, maker Sinosteel has re-
it’s common for companies peatedly been allowed to
to fail or to use bankruptcy postpone its payments to
laws to restructure. bondholders. The govern-
Beijing says that’s what it ment of Yunnan province
wants to do. In January, intervened in November
Zhang Yi, who oversees to avert a default after the
state-owned properties, state-owned Yunnan Coal
vowed to weed out “zom- Chemical Industry Group
bie” companies by 2020. ran short of cash to pay
Easier said than done — es- bondholders.q
Chinese investors monitor stock prices in a brokerage house in Beijing, Thursday, Feb. 25, 2016.
China isn’t just contending with falling stocks, a plunging currency and a slowing economy.
It’s got vampire trouble, too.
(AP Photo/Mark Schiefelbein)
too. central bank, insisted that remained fairly stable. But
The Chinese economy is Chinese authorities closely they surged after Beijing
pock-marked with com- monitor debt loads. Even delivered a huge stimulus
panies that can’t pay their so, he said he expects program in 2008 to fight
bills and survive only with China’s economy “to grow the global recession. Un-
government help. Jiangshi, at a moderate-to-high der orders, state-owned
the Chinese call them — pace.” banks pumped out loans.
“vampire companies.” Or The debt buildup is vast. And local governments
zombies. Chinese corporations (ex- piled up debt to finance
These ghoulish companies cluding financial compa- the construction of low-
and their debts are hinder- nies) had amassed $14.5 income apartments, roads
ing the world’s second- trillion in debt by mid-2015, and other projects meant
biggest economy and up 4½-fold from eight years to juice growth.
will likely do so for years. earlier, By keeping China’s econ-
Companies that miss debt according to the McKinsey omy humming, the stimulus
payments inflict losses on Global Institute. program helped energize
banks, which then find it That debt equaled 131 the global economy. And it
hard to lend even to solid percent of China’s gross added little to Beijing’s own
companies. domestic product, up from debt because it appeared
By propping up vampire 76 percent in mid-2007. on the books of banks and
companies, the govern- That’s nearly double U.S. state-owned companies.
ment can weaken the en- corporate debts’ share of Some loans financed fac-
tire economic ecosystem. U.S. GDP, McKinsey says. tory construction in poor
All of which helps explain China’s total debts — ev- regions or development in
why the global economy erything owed by corpora- areas with disadvantaged
is sputtering and why inves- tions, households, govern- ethnic groups.
tors have been gripped by ment and financial firms — Now, the debt is returning
panic. climbed from $6.6 trillion in to haunt China.
“It’s undoubtedly a very mid-2007 to $31.9 trillion by Debt-burdened compa-
serious problem,” says mid-2015. It equals 290 per- nies face another threat:
Charles Collyns, chief cent of China’s GDP, McK- Falling prices, which raise
economist at the Institute insey says — astoundingly their inflation-adjusted bor-
of International Finance. high for a still-developing rowing costs. Jason Thom-
“The Chinese so far have economy. as of the Carlyle Group
been very reluctant to let When banks lend with a investment firm says Chi-
