Defaults in One of China’s Richest Provinces Spook Investors
Six privately owned companies in one of China’s wealthiest provinces have defaulted on their debt or come perilously close in the last three months. With 68.1 billion yuan ($9.7 billion) in outstanding debt among those six companies alone, the distress in Shandong has rattled even seasoned investors.
The problem isn’t the defaults themselves -- other provinces have seen more and worse. It’s the practice common among Shandong companies of guaranteeing each others’ debts. Firms don’t have to make public these liabilities, leaving investors to wonder who’s on the hook and for how much. With the once-strong industrial economy flagging, the murky ties between the province’s private companies threaten to drag them all down together.
If you modeled the interest payments as a generator 'tree' it would have un-closed loops. Forensic accounting can spot the loop, it one can get a nearly complete data set, except for the bold part above.
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