In the Wall Street Journal today (gated): Loan ‘Guarantee Chains’ in China Prove Flimsy
It’s a good background piece on guarantee chains in China, where companies guarantee loans to other companies :
- Played a large role in fueling China’s debt expansion over the last six years
- Around one quarter of the $13 trillion in total outstanding loans as of the end of October were backed by promises from other companies and individuals to pay up if the borrower defaults
Reliance on these guarantees is now backfiring, regulators and analysts say, resulting in a surge of bad loans that banks had assumed were insured and threatening financial contagion
As economic growth has slowed … “guarantee chains—in which companies guarantee loans to other companies—are wreaking havoc in the wider economy”
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Full article is here: Loan ‘Guarantee Chains’ in China Prove Flimsy. It makes for uncomfortable reading.
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ADDED – Although the full article is gated, there is an extract here
