Explainer | China’s private-sector crisis: everything you need to know about the mess and what Beijing is doing to clean it up
- Much has been made about the plight of China’s private businesses, which have been angling for help for years and find the post-Covid environment difficult to thrive in
- Beijing wants to avoid risky stimulus handouts and is instead focusing on dozens of support measures that some analysts say will do little in the short term
China has recently announced a series of initiatives to prop up the country’s private economy, which the leadership sees as crucial in curbing downward risks in the nation’s economic rebound.
The private sector, which serves as the backbone of China’s 121-trillion-yuan (US$16.8 trillion) economy, was battered hardest during the pandemic and has remained subdued this year amid the slower-than-expected recovery.
Addressing overdue payments
The State Council, China’s cabinet, emphasised the need to speed up addressing the issue of overdue payments to businesses, aiming at “stimulating the vitality of private investment”.
Chinese companies were plagued by the most prolonged payment delays among major Asian economies, according to a recent report by global trade credit insurance group Coface. Given higher raw material prices and fierce market competition, customers with a business slump could face financial difficulties that lead to late or partial payments.
Such weakness was exacerbated by China’s strict Covid-control measures and economic recovery slowdown. It discourages enterprises’ operation and investment and could result in more firms being caught in debt situations that they are unable to resolve.
Meanwhile, a chain of delayed settlements forms so-called “triangular debt”. Companies end up owing money to each other and to their banks, to the possible detriment of their credit. It could create a serious bottleneck for China’s economic growth and intensify financial risks.