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Caijing Magazine:
Chinese Analysis Highlights Policy Fix
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Theres also the huge uncertainty about any nonquoted Chinese company ever getting permission
to IPO and so make the equity kicker liquid and
valuable. Straight securitized senior direct lending
to companies is what the China market most needs
and has shown will pay for. It also could boost
overall PE fund performance in China.
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Chinas Loanshark
Economy
Whats ailing China? Explanations arent
hard to come by: slowing growth, bloated and
inefficient state-owned enterprises, and a ferocious
anti-corruption campaign that seems to take
precedence over needed economic reforms.
Yet for all that, there is probably no bigger, more
detrimental, disruptive or overlooked problem in
Chinas economy than the high cost of borrowing
money. Real interest rates on collateralized loans
for most companies, especially in the private
sector where most of the best Chinese companies
can be found, are rarely below 10%. They are
usually at least 15% and are not uncommonly over
20%. Nowhere else are so many good companies
diced up for chum and fed to the loan sharks.
Logic would suggest that the high rates price in
some of the worlds highest loan default rates. This
is not the case. The official percentage of bad loans
in the Chinese banking sector is 1%, less than half
the rate in the U.S., Japan or Germany, all
countries incidentally where companies can borrow
money for 2-4% a year.
You could be forgiven for thinking that China is a
place where lenders are drowning in a sea of bad
credit. After all, major English-language business
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an
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Email: ceo@chinafirstcapital.com
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