The collapse of a state-owned credit guarantee company in China’s rust belt has again shone a spotlight on risk from bad debt and moral hazard in the country’s shadow banking system.
As China’s economy slows, concerns are mounting over rising defaults, especially on loans from non-bank lenders, which provide credit to risky borrowers at high interest rates.
Eleven shadow banks have written an open letter to the top Communist party official in northern China’s Hebei province, asking for a bailout that would enable the bankrupt company to backstop loans to deadbeat borrowers. If the guarantor cannot pay, it could spark defaults on at least 24 high-yielding wealth management products (WMPs).
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