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

Business & Technology

A summary of the top news in Chinese business and technology for July 21, 2017. Part of the daily SupChina newsletter, a convenient package of China’s business, political, and cultural news delivered to your inbox for free. Subscribe here.

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.”