China’s Debt Dilemma

From Capital Markets Insight

Since the middle of the last decade, the Chinese government has taken steps to reduce moral hazard, the presumption that the state will bailout companies if a default would be sufficiently disruptive to the financial system. Recently, Chinese authorities have allowed several firms to

default on their debts without providing any assistance, even state-owned enterprises, but the authorities have engineered selective bailouts to forestall all-out bankruptcies of firms it deems to be systemically important by arranging rescues by state-owned lenders.