The phenomenon of triangle debt has been found to affect numerous sectors in the country and there is a risk of "spreading further," the Economic Information Daily under the Xinhua News Agency reported Wednesday.
The conclusion was reached by the Ministry of Industry and Information Technology (MIIT), which has just completed the first phase of its probe into China's triangle debts, said the report.
Triangle debt means a debt default affecting two parties as a result of a third party being unable or unwilling to repay a loan.
According to the probe, the triangle debt problem among companies in the equipment manufacturing, coal, and iron and steel industries is "relatively prominent," the newspaper said, citing a source with knowledge of the matter.
The probe came after the State Council urged several government bodies - including the Ministry of Commerce, the central bank, the National Development and Reform Commission and the MIIT - to carry out an investigation into the problem of triangle debt.
According to a report released by the Development Research Center, a think tank under the State Council, many companies have complained recently that they are under increasing pressure as a result of the difficulty of collecting loan repayments, and the companies asked the authorities to investigate the situation.
If the triangle debt problem becomes too serious, it could impact the normal operations of companies, and as a result damage banks' credit systems.
Zhang Tieshan, an analyst at the steel information portal mysteel.com, was quoted by the official Securities Times Wednesday as saying that triangle debt is a common phenomenon, especially amid a slowing economy.
The main reason is that if the general economy is not so strong, companies will face difficulty in doing business and suffer declining profits. This means that banks will be less willing to provide them with loans, so the companies are then forced to seek loans from other channels, Zhang said.
Also, as triangle debts increase it can cause a minor debt crisis, and eventually a larger credit crisis, Zhang warned.