This announcement by the Chinese government should indicate a near-term end of the global asset bubble, as it seems unlikely that the deflationary contagion can be restricted to China, particularly given the situation in Ukraine.
China is braced for a wave of industrial bankruptcies as its slowing economy forces companies with sky-high debts to the wall, the country’s premier has said. Premier Li Keqiang told lenders to China’s private sector factories they should expect debt defaults as the world’s second largest economy encounters “serious challenges” in the year ahead.
Speaking after the annual session of the national people’s congress, Li Keqiang said: “We are going to confront serious challenges this year and some challenges may be even more complex.” He told lenders to China’s private sector factories they should expect debt defaults.
Li said China must “ensure steady growth, ensure employment, avert inflation and defuse risks” while also fighting pollution, among other tasks. “So we need to strike a proper balance amidst all these goals and objectives,” he added. “This is not going to be easy,” he said.
Li’s warning followed the failure of Shanghai Chaori Solar Energy to make a payment on a 1bn yuan (£118m) bond last week. The default was the first of its kind for China and widely seen as pointing to the end of 11th-hour government bailouts for troubled enterprises.
I’m not terribly surprised that China has decided to bite the bullet sooner than the USA, Japan, or the EU. Their banks are considerably less politically powerful and they have no need to worry about maintaining their social spending in order to appease the electorate.