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The
editorial is the latest sign the central government wants to
limit the perception that local government will always backstop
losses in debt issued by state-owned companies.
An unprecedented number of over 20 bond defaults have been
confirmed as many companies, especially in industries with
surplus production, feel the pinch of China's weakest economic
growth in 25 years.
The government has been working to change the perception that it
will backstop any losses, which distorts the market and only
exacerbates the problem, as underperforming firms are bailed
out.
While bond prices and liquidity have recovered substantially
since a series of state-owned defaults and warnings on curbing
overcapacity set off a sharp correction in April, the editorial
says there are big and growing risks in highly leveraged
state-owned enterprises (SOEs).
"Guaranteed repayment of bonds raises risks in SOE bonds and
leads to higher leverage ratios and a buildup of risks," the
editorial said.
SOE debt is so high because "state firms treated the government
as their nanny and backstop, and financial institutions are
suffering from a disease of SOE-worship," People's Daily said.
Despite the tough talk, some regulators have called for a softer
touch.
The banking regulator requested banks, also government-owned,
not to "casually" cut off or cease lending to firms facing
business difficulties, according to media reports this week.
China's policymakers have issued a series of tough comments on
"zombie" SOEs, many of which are heavily indebted from years of
breakneck expansion.
(Reporting by Elias Glenn and Nathaniel Taplin; Editing by
Christian Schmollinger)
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