Resolving China's Corporate Debt Problem

44 Pages Posted: 9 Dec 2016

See all articles by Wojciech S. Maliszewski

Wojciech S. Maliszewski

London School of Economics & Political Science (LSE) - Department of Economics

Serkan Arslanalp

International Monetary Fund (IMF)

John Caparusso

International Monetary Fund (IMF)

José Garrido

International Monetary Fund (IMF)

Si Guo

International Monetary Fund (IMF)

Joong Shik Kang

International Monetary Fund (IMF)

W. Raphael Lam

International Monetary Fund (IMF)

Daniel Law

International Monetary Fund (IMF)

Wei Liao

International Monetary Fund

Nadia Rendak

International Monetary Fund (IMF)

Philippe Wingender

International Monetary Fund (IMF) - Fiscal Affairs Department

Longmei Zhang

International Monetary Fund (IMF)

Jiangyan Yu

International Monetary Fund (IMF)

Date Written: October 2016

Abstract

Corporate credit growth in China has been excessive in recent years. This credit boom is related to the large increase in investment after the Global Financial Crisis. Investment efficiency has fallen and the financial performance of corporates has deteriorated steadily, affecting asset quality in financial institutions. The corporate debt problem should be addressed urgently with a comprehensive strategy. Key elements should include identifying companies in financial difficulties, proactively recognizing losses in the financial system, burden sharing, corporate restructuring and governance reform, hardening budget constraints, and facilitating market entry. A proactive strategy would trade off short-term economic pain for larger longer-term gain.

Keywords: Corporate debt, China, Credit expansion, Credit booms, Debt strategy, Corporate Debt Overhang; Credit; Restructuring; Hardening Budget Constraints

JEL Classification: E22, L16, K22

Suggested Citation

Maliszewski, Wojciech S. and Arslanalp, Serkan and Caparusso, John and Garrido, José and Guo, Si and Kang, Joong Shik and Lam, W. Raphael and Law, Daniel and Liao, Wei and Rendak, Nadia and Wingender, Philippe and Zhang, Longmei and Yu, Jiangyan, Resolving China's Corporate Debt Problem (October 2016). IMF Working Paper No. 16/203. Available at SSRN: https://ssrn.com/abstract=2882640

Wojciech S. Maliszewski (Contact Author)

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Serkan Arslanalp

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

John Caparusso

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

José Garrido

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Si Guo

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Joong Shik Kang

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

W. Raphael Lam

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Daniel Law

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Wei Liao

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Nadia Rendak

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Philippe Wingender

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States
202-623-9831 (Phone)
202-623-4199 (Fax)

Longmei Zhang

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Jiangyan Yu

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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