PRIMER: Chinese NPLs

Author: Karry Lai | Published: 17 Nov 2017

What is causing non-performing loans in China?

Non-performing loans (NPLs) in China are on the rise. The IMF estimates the country’s non-financial sector debt will exceed 290% of GDP by 2022, compared to 235% last year. According to one of the country’s four national state-owned asset management companies (AMCs) China Orient Asset Management, NPLs could reach RMB1.7 trillion by the end of 2017 and are expected to go up until 2019 at the earliest.

Following the financial crisis, a state-directed RMB4 trillion financial stimulus package gave the country’s economy a boost. At the same time, debts rose quickly as real estate lending and shadow banking activity grew. The investment boost led to over-capacity in sectors such as steel, paper mills and cement and NPLs have been growing rapidly since 2011 with a slowdown in credit growth. The emergence of zombie banks lending to zombie companies has exacerbated...