Beijing: Despite the coronavirus pandemic, China’s economy was forecast to show a minimal growth while key sectors were said to have gained momentum. However, the projection is believed fake and several Chinese companies have declared bankruptcy or have defaulted on loans. From January to October this year, Chinese state firms defaulted on bonds worth $6 billion. This information regarding the state-owned companies has created a sensation among the global investors.   

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China’s total debt has risen to over 330 per cent of its GDP, and in 2017, it stood at 250 per cent of it. In only three years, the debt-to-GDP ratio increased by a whopping 80 per cent. The policy China had adopted after the recession in the last decade is responsible for the significant rise. To cope with the 2008-09 global financial crisis, China made huge funding available to the banks and gave them the liberty to offer loans in significant amounts. The policy has not been changed since then.   

But in the past, the government would interfere if large or government companies defaulted in repayment. Therefore, the debt bonds issued by such companies were in demand. But now, the Chinese rulers have started giving other indications. A few days ago, senior Chinese leader Liu He indicated during a meeting that the government would not bail out every government company defaulting on loans or going bankrupt. He also warned about having zero tolerance regarding companies going bankrupt.   

While the government is giving these indications, a report regarding loan defaulters has been published. This report exposes that Chinese government companies have defaulted on bonds worth a whopping $6.1 billion, from January to October 2020. The government also has refrained from providing any aid to these companies or interfering in them. This is followed by three big government companies expressing inability to service its liabilities. These include Brilliance Auto Group, Tsinghua Unigroup and Yongcheng Coal and Electricity.  

These successive developments have created a sensation in the foreign investors who have invested in China. The rate of debt bonds has declined, and there is a massive increase in the interest rates. This has also hit the stock markets, and the shares of the government companies have collapsed. The Chinese debt market is worth nearly $15 trillion. This market is getting hit, and as per analysts, the repercussions will be felt even in the economy. Leading institutions like Fitch Ratings, Rhodium Group and Nomura Group, have started issuing warnings in this respect.   

Nearly 20 Chinese companies have suspended their debt bonds. At the same time, foreign investors are also cautious in their investments. This becomes a warning bell for the world’s second-largest economy. At the same time, experts claim that repercussions of these developments can also be felt in the international economy. 

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