Updated 11:29 AM EDT, Tue, Jun 16, 2020

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Bad Loans Arise as China Struggles with Slow Economy

Corporate debts impacts Chinese economy

(Photo : Photo:Getty Images/ Kevin Frayer) China struggles with economic slowdown

China's corporate debt surged profoundly prior to the lending and spending bout prompted by the Chinese government in an attempt to keep the Chinese economy bustling. Underlining the deceleration, China said on Friday that the growth fell to 6.7 percent in the first three months of the year. 

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Lending money to companies like Bohai Steel has always been an easy thing for Chinese banks. Lenders had no problem compensating their state backing as the Chinese economy was still solid.

Chinese officials from the Census and Economic Information Center (CEIC) also said that China's total local loans have proliferated a great deal to 98.6 trillion since the beginning of 2009, commensurate to 144 percent of the Gross Domestic Product of China in the recent year until the end of March.

Co-founder of J Capital Research, Anne Stevenson-Yang, said that defaults are not apt in posing a risk to Chines banks because it is anticipated that the government is supporting them. But a series of defaults could result to a lending retreat and subsequently tarnish the Chinese economy.

China is undergoing research on new ways to contend with the heap of bad corporate debt that has been upsetting the Chinese economy for a while. One of which is a proposal that will allow banks with bad loans to sell that debt to investors, said Zhou Xiaochuan, the governor of the People's Bank of China.

Zhou added, together with deputy central bank governor Pang Gongsheng, that they would be taking necessary measures to ensure that the resolution would not risk China's financial or economic condition like the one that transpired in the 2008 global crisis.

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