Chinese economy may face trouble as the corporate debt levels have risen to a new high in the country and have the potential to destabilise the economy, a media report said on Friday.
The country's regulators on Friday put a stop to the trading of bonds by the country's second-largest real estate developer, Evergrande, The Hong Kong Post reported on Friday.
Experts have warned that the firm won't be able to continue paying its debt obligations. The decision by regulators promotes a huge sell-off by investors, overwhelming exchanges. It's a broad reflection of the Chinese economy which appears to be solid from the outside but internally its structure is weak, the report said.
The country's state-owned financial asset management company, China Huarong Asset Management, said it had lost nearly $15.9 billion last year. A long-delayed earnings report showed that its debt-to-equity ratio at one point totalled 1,333 per cent, according to The Hong Kong Post.
Last month, Chinese state firms bailed out Huarong in an attempt to avoid a major collapse that could have shook the economy. But the communist regime won't make the same attempt for Evergrande.
The country's second-largest real estate developer has been selling its assets in a rush to raise the cash needed to satisfy lenders.
However, Huarong has already sold over half of its non-financial subsidiaries. Now, despite being a major company, Huarong has been reduced to the selling of its non-core assets to pay off its loans. It reflects the condition of the Chinese economy that its number 2 property company has been reduced to such a state, said the report in Hong Kong Post.
However, these unsustainable debts are not limited to big firms. Even in 2019 and 2020 Chinese firms defaulted on more than $20 billion in debt, and analysts believe that 2021 is on pace to set a new record! Now, investors have a very negative view of China, the report said.
It said China -- which is widely known to trap other countries under its crippling debt through one-sided loan agreements -- is in decaying economic condition at its home.
According to the Bank for International Settlements, at the end of 2020, the total debt issued to non-financial corporations in China totalled 161 per cent of the country's GDP. Experts say that as the defaults increase, a bank's ability to absorb losses also decreases.
China may soon face financial contagion as the country's property developers' loans are surging due to the communist regime's recent crackdown. Beijing's crackdown on overextended property developers has led to a surge in loan losses. And it has also raised fears of contagion across the nation's $50 trillion financial sector, Nikkei Asia reported.
( With inputs from ANI )
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