unbuilt homes to local residents. China’s largest wealth-management firms have started to default on payments owed to investors. Given that these types of hidden debts have so far attracted little attention, Jinzhou’s troubles ought to come as a warning.
Problems with loans to the smallest companies began with the onset of covid-19. As China’s economy shut down in January 2020, the central bank put a moratorium on the repayment of loans for small- and micro-enterprises until June that year in order to halt a wave of defaults. After less than three months of the policy, officials estimated that about 700bn yuan in payments had been deferred.
The moratorium has been extended several times since then, with officials citing the continued impact of covid. No estimate for the total amount of unpaid loans exists and banks will not be required to disclose them publicly until next year. The moratorium has also coincided with another state initiative.
In order to stimulate the economy, the central government has leaned on banks to extend loans to the smallest firms, and to do so at the lowest possible interest rates. Although such policies have been tried for years, banks have been resistant, preferring to lend to the large, often state-owned firms with which they have relationships already. This time the policy has worked, however.
A crackdown on the banking industry, culminating in the arrest of the president of one of China’s largest commercial banks last year, has made bosses more willing to follow official edicts. As a result, at the beginning of the year about 28% of all loans in China had been given to small- and micro-enterprises, up from 24% at the end of 2019. Many of these loans represent simply the renewal of older,
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