Beijing - In China’s “Shipping Valley”, where the Yangtze River empties into the sea north of Shanghai, the once-bustling home of the nation’s biggest private shipbuilder is deadly quiet on a recent morning.
Rows of dilapidated five-story dormitories in the city of Nantong, previously housing China Rongsheng Heavy Industries Group’s 38 000 employees, were abandoned after the shipbuilder teetering on collapse cut almost 80 percent of its workers over the past two years. Most video arcades, restaurants and shops serving them have closed.
A $6.6 trillion (R66.9 trillion) credit binge during the past five years, encouraged by Beijing policy makers as stimulus to combat a global economic slowdown, now threatens to stoke a debt crisis. At stake are trillions of yuan in bank loans that companies producing everything from ships to steel to solar power are struggling to repay as the world’s second-largest economy heads for the weakest annual expansion since 1999.
Rongsheng, which is seeking a government bailout after accumulating 25 billion yuan (R41.3bn) in unpaid loans as of June, including to Bank of China, is a casualty of over-investment gone bust.
In Nantong, the only remaining market is selling past-its-shelf-life bread, woolly shoe pads and other dusty items at a discount as shopkeeper Qiu Aibing prepares to wind down before winter. There’s no sign of a single customer.
“After I’m done selling all this stuff, I’ll be gone,” said Qiu, briefly lifting his eyes from a television and casting a careless look at the half-empty shelves.
China’s biggest banks are already affected, tripling the amount of bad loans they wrote off in the first half of this year and cleaning up their books ahead of what may be a fresh wave of defaults. Industrial and Commercial Bank of China and its four largest competitors expunged 22.1 billion yuan of debt that couldn’t be collected to June, up from 7.65 billion yuan a year earlier, regulatory filings show.
“In the next three to four years, industries with excess capacity will be the main source of credit loss for banks and their nonperforming loans as China cleans up the legacy,” said Liao Qiang, a Beijing-based director at Standard & Poor’s. “The speed of the process will depend on the government’s determination and whether they are willing to incur short-term pain for long-term gain.”
Premier Li Keqiang, who took office in March, pledged to open the economy to market forces and strip power from the government in a process he described as “very painful and even feels like cutting one’s wrist”. In July, he vowed to curb overcapacity, which the government blames for driving down prices, eroding profits and generating pollution. Policy makers meeting in Beijing last week said they would elevate the role of markets in the nation’s economy.
China’s economy will probably expand 7.6 percent this year, the weakest pace since 1999, even as growth rebounded in the third quarter, according to the median estimate of economists surveyed by Bloomberg.
Shang Fulin, China’s top banking regulator, this month urged lenders to “seek channels to clean up bad loans by industries with overcapacity to prevent new risks from brewing” and refrain from dragging their feet. - Bloomberg