Resolving China’s Corporate Debt Problem

IMF Working Papers, October 14, 2016

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Resolving China’s Corporate Debt Problem

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Bibliographic details

• Authors: Wojciech Maliszewski, Serkan Arslanalp, John C Caparusso, Jose M Garrido, Si Guo, Joong S Kang, Waikei R Lam, Daniel Law, Wei Liao, Nadia Rendak, Philippe Wingender, Jiangyan Yu, Longmei Zhang
• Published: October 14, 2016
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781475545289.001

Key findings

• Corporate credit growth in China has been excessive in recent years.
• The credit boom is related to the large increase in investment after the Global Financial Crisis.
• Investment efficiency has fallen and the financial performance of corporates has deteriorated steadily.
• Deteriorating corporate performance is affecting asset quality in financial institutions.
• A proactive strategy would trade off short-term economic pain for larger longer-term gain.

Drivers and consequences

• Driver: large increase in investment after the Global Financial Crisis.
• Consequence: falling investment efficiency.
• Consequence: steadily deteriorating corporate financial performance.
• Consequence: weakened asset quality in financial institutions.

Recommended comprehensive strategy (key elements)

• Identifying companies in financial difficulties.
• Proactively recognizing losses in the financial system.
• Burden sharing.
• Corporate restructuring and governance reform.
• Hardening budget constraints.
• Facilitating market entry.

Subject areas and keywords

• Subject: Banking, Credit, Credit booms, Financial institutions, Financial sector policy and analysis, Government liabilities, Loans, Money, Public financial management (PFM), Solvency
• Keywords: bond market, construction boom, Corporate Debt Overhang, coverage ratio, Credit, credit boom, Credit booms, credit efficiency, credit financing, credit growth, Global, Government liabilities, Hardening Budget Constraints, Loans, market forces, People's Bank of China, Restructuring, shadow credit product, Solvency, WP

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