State-owned companies still addicted to debt - China’s latest business and technology news - SupChina

State-owned companies still addicted to debt – China’s latest business and technology news

Bloomberg reports on a major challenge facing China’s financial regulators: reducing the debt load of state-owned enterprises (SOEs).

Key issues:

  • The goal of reducing public sector debt, while named “the priority of priorities” by President Xi Jinping at a financial conference last week, is extremely difficult “because Communist Party officials have for decades risen through the ranks by borrowing to fund growth — whether at local authority levels or atop an SOE monopoly.”
  • A “key underlying problem” to tackling overborrowing throughout the Chinese economy is the inefficient use of credit. Two weeks ago, Bloomberg noted that new regulations on financial speculation had helped to tighten up the credit system, but the economy is still suffering from a legacy of borrowing following the 2008 financial crisis.

Some see hope for reform in the appointment of more financial regulators, reported by Caixin, to the 19th Party Congress, which will select China’s leadership this fall.

Meanwhile, the government is not hesitating to prop up lagging SOEs with fresh cash from the private sector.

  • Sources tell Reuters that “Baidu Inc and will join other big Chinese technology firms to jointly invest about $12 billion in the Shanghai-listed unit of China Unicom, the weakest of three big state-owned telecoms firms.” China Unicom, one of the world’s largest mobile carriers, has struggled recently with overstaffing and a lack of innovation, as “private firms have moved ahead in developing cloud and big data services, and mobile software.”

Lucas Niewenhuis

Lucas Niewenhuis is an associate editor at SupChina who helps curate daily news and produce the company's newsletter, app, and website content. Previously, Lucas researched China-Africa relations at the Social Science Research Council and interned at the Council on Foreign Relations in New York. He has studied Chinese language and culture in Shanghai and Beijing, and is a graduate of the University of Michigan.