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China Huarong Is a Test for Beijing’s Financial Reform Drive

Someone has to take big losses. Will it be foreign or domestic investors?
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Illustration: George Wylesol for Bloomberg Businessweek

The Chinese government controls valuable assets in strategic areas through state-owned enterprises. But SOEs are also inefficient, prone to corruption, and heavily indebted. As of 2019, the latest year for which data are available, SOEs had 126 trillion yuan ($19.4 trillion) of debt, or about 40% of the nation’s total government, corporate, and household debt, helping to make China one of the most heavily indebted countries in the world.

China has been trying to get its SOEs to slim down. Although this is mostly a domestic affair, once in a while, its reform agenda can clash directly with foreigners’ interests. China Huarong Asset Management Co., majority-owned by the Ministry of Finance, is a prime test case.