China vows to guard financial stability after big-name defaults

China vows to guard financial stability after big-name defaults

State-backed companies account for 40% of total this year

SHANGHAI — China has pledged to step up monitoring of financial misconduct to ensure system stability after a series of high-profile defaults by state-backed companies sent shock waves across the country. 

China’s corporate defaults have reached 157 billion yuan ($23.9 billion) so far this year and are on track to surpass last year’s record 167 billion yuan. State-owned companies, including miner Yongcheng Coal & Electricity Holding Group, chipmaker Tsinghua Unigroup and Huachen Automotive Group Holdings, account for 40% of the total.

A State Council committee on financial stability chaired by Vice Premier Liu He held an emergency meeting on Saturday, and promised action to “avoid a financial system crisis,” calling for “zero tolerance” for corporate misconduct.

This year’s default problem has been particularly unnerving to investors in that state-backed companies figure prominently in the trend. Corporate finances deteriorated quickly after China pulled back the financial support extended as part of pandemic-related economic stimulus. Beijing is now determined to prevent any instability.

The committee found that a confluence of factors, such as the economic cycle, the economic system and corporate behavior, contributed to the recent surge in defaults.