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Loan ‘Guarantee Chains’ in China Prove Flimsy
Keywords:
The role of "loan guarantee chains" in fueling China's credit bubble and the surge in bad loans in 2014-2015
11/24/2014
Experts says what is unusual in China is that the loan guarantees for one firm are given by other firms in different industries. One defaulting textile firm had its loan guranteed by a machinery maker and a paper maker. The result is it creates problems for all of the firms. The other problem aspect of this arrangement is that banks evaluated credit risk by using these loan guarantees as evidence of creditworthiness. Till 2012 with no slowdown in growth in sight no questions were asked. With the slowdown in 2014-2015 this means a surge in bad loans in China's banking system unlike what it has experienced before, as continued high pace of growth can no longer be relied on to cushion the banking system from the risks.
Grouped Articles
Loan ‘Guarantee Chains’ in China Prove Flimsy
Wall Street Journal 11/24/2014
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