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Debt swap problems pile up in China

Debt-for-equity swaps are all the rage among China’s state-owned enterprises, but it may be that households, rather than banks or insurance companies, are going to be the ones footing the bill.


As far as China bulls go, the country’s own middle class are the most feverish of all. But there is one investment they are already making they may not even know they signed up for – China’s bloated and mismanaged state-owned enterprises. 

A booming economy and state-backed investment combined with the citizenry’s faith in central government’s financial backing power and a naïve obsession with the newish world of personal investment have produced remarkable growth in the financial sector. A shallow asset pool resulting from the sheer volume of recently created wealth has also generated remarkable bubbles. In 2016, speculators caused garlic prices to surge to thousands of renminbi a kilogramme above gold after a poor harvest. 

China’s booming middle class are, as one Hong Kong-based finance professional puts it, “addicted to highly speculative, high-risk investments”. 

Relatively new to the idea of investment, mollycoddled by their own government into believing that it has unlimited ability and willingness to support them, they are also difficult to appease when things go sour. 

In July, hundreds of investors who had invested in a pyramid scheme came together in Beijing to protest not about the company but rather to urge the government to stop an investigation into the company that could hurt their earnings.