Chinese Economy Teetering on the Brink of Collapse

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Financial System About to Collapse
Xi’s appearance at the Pudong conference coincides with the Chinese bond market experiencing trouble and many defaults. The Chinese financial system is on the brink of collapse with a loaded debt crisis engulfing local governments and state-owned enterprises.

According to Chinese media reports, about 69 percent of outstanding loans to China’s private enterprises defaulted in the first three quarters of 2020. At the same time, there were also successive delinquencies by state-owned enterprises.

For example, Brilliance Auto Group, officially known as HuaChen Group Auto Holding, owned by the Liaoning provincial government failed to repay 1 billion yuan (about $152 million) to its bondholders after the bond matured in October. The Liaoning state-owned enterprise Shenyang Shengjing Energy was also in debt default, and on November 13, Henan state-owned Yongcheng Coal Power Company defaulted on a 1 billion yuan bond.

Furthermore, Ziguang Group, China’s largest semiconductor group and the third largest shareholder of SMIC (Semiconductor Manufacturing International Corporation), China’s leading chip maker, is also on the verge of default after Peking University Founder Group filed bankruptcy due to a debt crisis. Ziguang Group’s debt has now reached more than 200 billion yuan (about $30 billion). According to Chinese media reports, Ziguang applied for an extension of a 1 billion yuan trust loan that was due on Nov. 9, but failed to get approval by the bank in Anhui.

China’s debt market is facing a difficult situation that hasn’t been seen in many years. Market confidence has been overshadowed by various types of debt defaults, from the default of local government investments to the default of state-owned enterprise credit bonds. And panic has also been spreading. A cliff-like decline in financing has led to a break in the chain of subsequent refinancing funds that might trigger a systemic financial failure.

David Adams

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