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Sunday 3rd January 2021

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Graham Perry
Graham Perry
Experienced Arbitration Lawyer | China & Chinese Business Affairs | Public Speaker/Lecturer.

The Iron Bowl policy applied in China up to Deng Hsiao Pings’s Reforms. The policy meant that all citizens could look to the State to provide the essential means of life. China has always been very paternalistic but people now had to learn to provide for themselves.

It is the same with regional governments who have over-borrowed to finance infrastructure + construction projects. Sometimes it is local need but often it is local vanity as Provinces vie with each other to construct eye-catching developments.

Regional govts have evaded borrowing limits by transferring assets on to the books of local investment companies to lower their official debt-to-asset ratios. They have been “found out” and a surge in bad debts is anticipated.

China is getting real. It aims to recover its reputation for sound finance. Companies will fail and defaults will happen. The breeze of change is gathering force. Troublesome in the short term but reassuring going forward.

Keep Well and Free from Covid.

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