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Home»Debt»China heads off ‘triangular debt’ quagmire with demands for state repayments
Debt

China heads off ‘triangular debt’ quagmire with demands for state repayments

finvestadminBy finvestadminSeptember 21, 2023No Comments4 Mins Read
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There are no official figures to show the magnitude of the burden.

As of mid-2021, the total amount was 6.7 trillion yuan ($918 billion), equivalent to 5.8% of gross domestic product in the same year, according to a 2022 Bank of China report.

Zhu Baoliang, an advisor at the National Information Center, a government think tank affiliated with the National Development and Reform Commission, told the media in August that China’s corporate debt outstanding increased by more than 10% in the first half of this year. .

It is common for payments to be delayed by 1-2 years.

Jay Feng, Guangdong
The government’s repayment demands, if granted, could help free up private companies. hire more peopleThis is because cash flow is under pressure due to missed payment deadlines and prolonged delays.

According to global trade credit insurer Coface, the average payment delay in mainland China last year was 83 days, lower than 86 days in 2021. However, both values ​​are approximately twice that of Japan.

On the ground, local governments and state-owned enterprises are doing everything they can to maintain normal operations by deferring payments and keeping cash in hand. They also enjoy broader access to financing channels than private players enjoy.

China’s private companies still face ‘hidden barriers’, state media warns

“The government has been asking us to repay our debt for a long time, but the results have not been that great,” said a manager at a state-owned company in southwestern China, who requested anonymity due to the sensitivity of the topic. Ta.

The owner’s company, which is a manufacturer of textile raw materials, has been in the red since 2020. It has billions of yuan in unpaid debts and has so far only been able to repay 30% of the arrears owed to carriers since April.

The executive said suppliers will be prioritized as the company’s main consideration for repayment is to maintain operations.

“If our suppliers do not receive payment, they may refuse to provide materials and may take legal action.”

04:49

China’s real estate debt crisis sparks anger as apartments remain unfinished

China’s real estate debt crisis sparks anger as apartments remain unfinished

State and city officials attribute the shortage to: Decrease in tax revenue After nearly three years under China’s restrictive zero-corona policy.

But the negative effects of the debt burden are not necessarily being felt in the same way, said Jay Feng, a subcontractor for southern China’s state-run power grid and some real estate developers in Guangdong province.

“Whether you get paid or not depends on how close you can get to the leadership of state-owned enterprises,” he said. “If the relationship is good, the salary will be paid early, but not in full.”

In central Henan province alone, local governments and state-owned enterprises totaled 9.56 billion yuan (US$1.31 billion) in overdue payments to small and medium-sized private enterprises last year, according to an annual government audit.

Continued delays are understandably distressing for those directly affected. Expressing open distrust of state institutions, Feng said, “It is common for payments to be delayed for one to two years under the pretext of red tape and audit issues.”

China’s serious debt dilemma: The longer you wait, the higher the cost

The potential consequences of inaction cannot be ignored. When the Chinese government assessed the country’s first-quarter economic performance at a Politburo meeting in April, it warned that an increasing number of companies were borrowing not only from banks but also from each other.

Wang Dong, a former vice principal at the Central Party School, said earlier this year that local authorities should first repay private companies, then state-owned enterprises and banks.

“If private companies have enough funds and make profits, they will be able to repay bank loans,” he said.

The government has made supporting the private sector a top priority. 31-point action plan was announced in July, but more may be needed to reduce the invisible risks.

So far, the triangular debt problem has not triggered a serious crisis, but the economy is still lagging behind. According to official data, the combined profits of private industrial enterprises with annual operating revenue of 20 million yuan or more fell 10.7% year-on-year to 1.2 trillion yuan in the January-July period.

Private investment also declined, falling 0.7% year-on-year in the first eight months of 2023.

China Debt demands heads quagmire repayments state triangular
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