Default Risks Linger in China

Despite starting the year with dire predictions that China faced a slew of defaults, few mainland borrowers have welshed on their debts, thanks to various stripes of government intervention.

“The central government earlier this year issued a decree saying [local governments] need to focus on preventing financial or regional systemic risk,” Donna Kwok, senior China economist at UBS, told CNBC. “Local governments have taken this to heart,” stepping up intervention either by directly or indirectly bailing companies out or actively mediating between corporates and banks, Kwok said.

China’s debt levels – which soared to 250 percent of gross domestic product (GDP) according to some estimates – have been a major concern for investors for years, spurring fears that the surge in borrowing is fueling a dangerous property bubble and overcapacity in many industries, including steel, mining and solar energy, any of which could face collapse as the economy slows and Beijing tries to choke off overinvestment.


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