Resolving China’s Corporate Debt Problem

Author/Editor:

Wojciech Maliszewski ; Serkan Arslanalp ; John C Caparusso ; José Garrido ; Si Guo ; Joong Shik Kang ; W. Raphael Lam ; Daniel Law ; Wei Liao ; Nadia Rendak ; Philippe Wingender ; Jiangyan Yu ; Longmei Zhang

Publication Date:

October 14, 2016

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Corporate credit growth in China has been excessive in recent years. This credit boom is related to the large increase in investment after the Global Financial Crisis. Investment efficiency has fallen and the financial performance of corporates has deteriorated steadily, affecting asset quality in financial institutions. The corporate debt problem should be addressed urgently with a comprehensive strategy. Key elements should include identifying companies in financial difficulties, proactively recognizing losses in the financial system, burden sharing, corporate restructuring and governance reform, hardening budget constraints, and facilitating market entry. A proactive strategy would trade off short-term economic pain for larger longer-term gain.