China's Chain of Debt Guarantees Looms as Systemic Danger
- Companies amassed hundreds of billions of dollars of pledges
- Shandong province, China’s third richest, especially affected
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Moves by Chinese companies to guarantee each others’ debt have left the world’s third-largest bond market prone to contagion risks -- making it all the tougher for officials to follow through on initiatives to sustain credit flows.
Private companies have long had to be innovative in getting financing in Communist-run China, where state-owned enterprises have had preferential access to the banking system. Extending guarantees to each other helped businesses boost some lenders’ confidence enough to extend funding to them.