Credit craving lures SOEs onto thin ice

Source:Global Times Published: 2014-1-23 20:58:02

After the Third Plenum of the 18th Communist Party of China Central Committee, the central government issued reform plans intended to make way for more private investment and diversified equity ownership within the country's State-owned enterprises (SOEs).

This move hasn't done much to stop SOEs from pursuing reckless expansion plans. In their quest to build scale, SOEs are not only looking to commercial banks for funding, but to brokerages, investors and trust providers as well.

Many SOEs are in a situation where it will be hard to readjust their structure and reduce their leverage. To keep treading water, many are borrowing new debt to service their existing loans. The unsustainable financial machinations of SOEs may lead to a full-blown debt crisis. In many ways, this sort of financing expansion is an inevitable outcome of SOEs' industrial expansion. SOEs will become another tumor on China's economy if this sort of behavior is left untreated.

Based on an article from Beijing-based private strategic think tank Anbound.

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