Page 388 - 2020 White Paper on the Business Environment in China
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0 White Paper on the Business Environment in China
while China has also sought to bypass the taxes to lenders and investors around the globe. The
by exporting to the US via other Asian countries. central government in Beijing keeps a tight grip
China’s share of global exports has actually grown on the Chinese financial system and often rescues
over the past year, showing that the fall in Chinese companies to preserve jobs, but Beijing has shown
exports has been less pronounced than those from a greater willingness to let companies go insolvent
other countries. Western businesses, meanwhile, to teach them a lesson about borrowing too much,
are finding it increasingly hard to navigate the and many local governments now lack the funds
uncertainty (Costa). to help their hometown champions (Stevenson).
A decade ago, when the global financial crisis From rural bank runs to surging consumer
threatened world growth, China began a giant indebtedness and an unprecedented bond
stimulus push to build roads and bridges and restructuring, mounting signs of financial stress in
create jobs. To fund it, banks lent heavily and China are putting the nation’s policy makers to the
local governments began raising money. The push test. The Chinese government faces an increasingly
resulted in the largest credit expansion by any difficult balancing act as it tries to support its
single country in terms of the size of its economy. economy without encouraging moral hazard and
The banking system more than quadrupled reckless spending. While authorities have so far
in size, from US$9 trillion at the end of 2008 to been reluctant to rescue troubled borrowers
US$40 trillion today. Officials began to tackle the and ramp up stimulus, the costs of maintaining
mess in 2017. They clamped down on an unruly that stance are rising as defaults increase and
banking sector where murky platforms linked China’s slowdown deepens. Authorities have
borrowers with lenders willing to hand over intervened to quell at least two bank runs and
money in exchange for big returns. They allowed orchestrated bailouts for two other lenders. In its
more bankruptcies, hoping to send a message that annual Financial Stability Report, China’s central
companies that spend recklessly will be allowed bank described 586 of the country’s almost 4,400
to fail. State-backed banks were told to pull back lenders as “high risk,” slightly more than 2018.
on easy cash for state-owned enterprises. Beijing It also highlighted the dangers associated with
then cut much of the financial assistance that local rising consumer leverage, saying household debt
governments once enjoyed. As a result, money as a percentage of disposable income jumped
has become harder or more expensive to come to 99.9 percent in 2018 from 93.4 percent a
by for many companies. In May 2019, Chinese year earlier. The PBOC and other regulators
regulators seized a bank, Baoshang Bank, for the have long warned about the risks of excessive
first time in two decades. In response, smaller corporate debt, which climbed to a record 165
banks across the country raised their rates for percent of gross domestic product in 2018. For
lending to riskier banks and companies. This, now, investors appear to be betting that policy
in turn, put more pressure on companies that makers can manage the country’s financial risks
needed financial help. But regulators are walking and keep the economy afloat. The government’s
a tightrope. Slowing lending has contributed to sale of US$6 billion in sovereign dollar debt in late
faltering economic growth. Beijing continues 2019 was oversubscribed, while volatility in the
to look for ways to pour fresh money into the Chinese stock market has dropped to the lowest
financial system even as it tries to clean up the level since early 2018, in part due to optimism
mess left behind by some of its biggest borrowers. over the prospects for a trade deal with the US.
By the beginning of December 2019, the value The central bank and other regulators are forcing
of loans on which Chinese companies defaulted troubled banks to increase capital, cut bad loans,
surpassed the total for 2018. Chinese corporate limit dividends and replace management. They
borrowers have defaulted on nearly US$20 billion have also floated a sweeping measure that would
in loans in 2019. The amount is small compared encourage mergers among smaller institutions
with China’s overall economy, but the toll is rising. and enlist local governments to support them.
Chinese companies owe hundreds of billions of
dollars in debt that is coming due over the next two In November 2019, China’s Financial Stability
years, including more than US$200 billion owed and Development Committee called for more
388
while China has also sought to bypass the taxes to lenders and investors around the globe. The
by exporting to the US via other Asian countries. central government in Beijing keeps a tight grip
China’s share of global exports has actually grown on the Chinese financial system and often rescues
over the past year, showing that the fall in Chinese companies to preserve jobs, but Beijing has shown
exports has been less pronounced than those from a greater willingness to let companies go insolvent
other countries. Western businesses, meanwhile, to teach them a lesson about borrowing too much,
are finding it increasingly hard to navigate the and many local governments now lack the funds
uncertainty (Costa). to help their hometown champions (Stevenson).
A decade ago, when the global financial crisis From rural bank runs to surging consumer
threatened world growth, China began a giant indebtedness and an unprecedented bond
stimulus push to build roads and bridges and restructuring, mounting signs of financial stress in
create jobs. To fund it, banks lent heavily and China are putting the nation’s policy makers to the
local governments began raising money. The push test. The Chinese government faces an increasingly
resulted in the largest credit expansion by any difficult balancing act as it tries to support its
single country in terms of the size of its economy. economy without encouraging moral hazard and
The banking system more than quadrupled reckless spending. While authorities have so far
in size, from US$9 trillion at the end of 2008 to been reluctant to rescue troubled borrowers
US$40 trillion today. Officials began to tackle the and ramp up stimulus, the costs of maintaining
mess in 2017. They clamped down on an unruly that stance are rising as defaults increase and
banking sector where murky platforms linked China’s slowdown deepens. Authorities have
borrowers with lenders willing to hand over intervened to quell at least two bank runs and
money in exchange for big returns. They allowed orchestrated bailouts for two other lenders. In its
more bankruptcies, hoping to send a message that annual Financial Stability Report, China’s central
companies that spend recklessly will be allowed bank described 586 of the country’s almost 4,400
to fail. State-backed banks were told to pull back lenders as “high risk,” slightly more than 2018.
on easy cash for state-owned enterprises. Beijing It also highlighted the dangers associated with
then cut much of the financial assistance that local rising consumer leverage, saying household debt
governments once enjoyed. As a result, money as a percentage of disposable income jumped
has become harder or more expensive to come to 99.9 percent in 2018 from 93.4 percent a
by for many companies. In May 2019, Chinese year earlier. The PBOC and other regulators
regulators seized a bank, Baoshang Bank, for the have long warned about the risks of excessive
first time in two decades. In response, smaller corporate debt, which climbed to a record 165
banks across the country raised their rates for percent of gross domestic product in 2018. For
lending to riskier banks and companies. This, now, investors appear to be betting that policy
in turn, put more pressure on companies that makers can manage the country’s financial risks
needed financial help. But regulators are walking and keep the economy afloat. The government’s
a tightrope. Slowing lending has contributed to sale of US$6 billion in sovereign dollar debt in late
faltering economic growth. Beijing continues 2019 was oversubscribed, while volatility in the
to look for ways to pour fresh money into the Chinese stock market has dropped to the lowest
financial system even as it tries to clean up the level since early 2018, in part due to optimism
mess left behind by some of its biggest borrowers. over the prospects for a trade deal with the US.
By the beginning of December 2019, the value The central bank and other regulators are forcing
of loans on which Chinese companies defaulted troubled banks to increase capital, cut bad loans,
surpassed the total for 2018. Chinese corporate limit dividends and replace management. They
borrowers have defaulted on nearly US$20 billion have also floated a sweeping measure that would
in loans in 2019. The amount is small compared encourage mergers among smaller institutions
with China’s overall economy, but the toll is rising. and enlist local governments to support them.
Chinese companies owe hundreds of billions of
dollars in debt that is coming due over the next two In November 2019, China’s Financial Stability
years, including more than US$200 billion owed and Development Committee called for more
388
