China Inc. Virus Cure Will Worsen Its Condition
Another crisis, another prescription allowing struggling companies to pile up more debt. It has to stop.
China Inc. is getting sicker from mounting debt, not just the coronavirus.
Photographer: Getty ImagesBeijing is throwing all it’s got at the coronavirus. Less visible than the drama of quarantining communities, however, is the new pressure that the outbreak is bringing on China Inc.’s hard-up borrowers.
They face $944 billion of debt maturities onshore and $90 billion offshore this year. Authorities are going back to their old playbook of spewing handouts to get them through. The costs will add billions of dollars of debt and cripple an already-weakened financial system. It may be doing more harm than good.
Workers are stranded and factories remain widely shut. There is no imminent sign of that changing, even if the increase in infections has trended downward in recent days. The resulting economic slowdown will bite into earnings by 10% to 20% for months and hamper the ability of companies to pay their debts. As asset quality deteriorates, Goldman Sachs Group Inc. estimates that Chinese banks’ implied ratio of bad-to-total loans will jump to 8.1% from an earlier prediction of 5.4%.