Coronavirus: China to open US$1.5 trillion distressed debt market as it braces for bad loan blowout

China’s distressed debt market could see an increase of sour loans this year as the economic impact of the coronavirus hits small businesses and the property sector

PwC estimates that China’s banks and asset management companies hold about US$1.5 trillion of bad debt and other distressed assets, up from US$1.4 trillion in 2018

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China’s economy is expected to shrink in the first quarter for the first time since 1976. Photo: Reuters

Published: 7:30pm, 30 Mar 2020Updated: 9:33am, 1 Apr 2020

Ever since the coronavirus outbreak began eating away at his business, Zhu Bo has been making plans about how to keep his small financial information and social media company afloat.

He stopped paying rent for the office space his firm occupies in one in one of Shanghai’s oldest commercial districts about two months ago, and, as losses began piling up, he halted projects for the foreseeable future and asked staff to take a month’s unpaid leave.

Now, with news that prominent customers plan to halve their advertising spending this year, he is considering laying off some employees and is anxiously waiting to hear if his landlord will let him delay payments for April.

“Even though my lifestyle seems to be returning to normal, I’m still very cautious,” Zhu said. “There is such big uncertainty for the future of the economy and how that would affect my advertising income.”

While the business outlook may be bleak for Zhu, his situation represents a big opportunity for so-called “special situation” investors in the arcane world of global distressed debt markets.