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Feature
State-owned enterprises: non-performing loans
The problem became apparent when Yongcheng Coal & Electricity Holding Group, a mining operator under the Henan provincial government, defaulted on a loan of over €120 million in early November. A company, mind you, that had been given a top AAA rating by Chinese credit rating agencies. The latter is a much bigger problem than the loan amount itself: The Chinese rating agencies’ early warning system doesn’t work. And that’s risky. After all, Yongcheng Coal’s parent company, Henan Energy and Chemical Industry, is one of the largest state-owned enterprises in the province.
The Chinese government just can’t get a grip on the rating issue. Back in 2018, Dadong, the rating agency founded in 2008, had to temporarily suspend its operations due to corruption and was reorganized. Now it turns out that wasn’t enough: More than 90 percent of firms with non-performing loans had a rating of at least ‘A’ at the time of default.
Government support made them immune to loan defaults for a long time, the agencies defend. They also say state-owned banks have favored state-owned companies because of perceived guarantees from the government.
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