Beijing is getting increasingly nervous about the rapid build-up of debt in industries such as steel and power, as cooling demand and overcapacity cause delays in payments amid the slowest economic growth in three years.
State agencies, including the Ministry of Industry and Information Technology and the China Banking Regulatory Commission, have recently held meetings with representatives from five industries to discuss the situation, said an official at the China Iron & Steel Association, who attended one such meeting last week.
The industries - steel, coal, power, non-ferrous metal, and machine building - have been hit hard by weakening demand as the economy slows, the official said, but he did not elaborate on the measures considered by the government to aid these sectors.
Crude steel output dropped 0.1 per cent in the first seven months of this year, the first decline since 2000, the official said.
Accounts receivable - the money owed by clients that buy steel, such as property developers or infrastructure companies - surged 20 per cent at the end of June from a year earlier to 116 billion yuan (HK$141.88 billion).
Meanwhile, accounts payable - what steelmakers owe raw material suppliers - rose 6.5 per cent to more than 400 billion yuan, he said. The delay in payments has affected suppliers' repayment of bank loans, creating a debt chain.
Similar problems have surfaced in the other four industries. Accounts receivable for the coal industry, for example, soared 53 per cent at the end of June from a year earlier, the official said.
Economic growth slid to 7.6 per cent in the second quarter, the worst performance in three years.
Preliminary data released by HSBC shows that the purchasing managers' index in manufacturing slumped to 47.8 in August, the lowest in nine months.
"The destocking process has yet to be completed, indicating that excessive capacity and sluggish demand won't be easy to resolve," said Ken Peng, senior economist for China at BNP Paribas. He said the uncertainties surrounding the top leadership reshuffle have delayed any major stimulus policy.
HSBC this week lowered its mainland China growth forecast this year to 8 per cent from 8.4 per cent. It cited a collapse in external demand and lingering effects of last year's policy tightening.
The steel association official warned of chain reactions if growth drops even further.
"Some of the smaller coal producers may have to close due to difficulties in getting loans. That will hurt jobs and social stability, and will also affect property sales and consumption in the surrounding regions," he said.