Chinese firms' practice of cross-guaranteeing loans to each other is storing up problems in the country's financial system. two companies in Dongying city in China province are trying to restructure debts mainly because of defaults on loans made to other businesses. Private companies in Shandong usually need significant assets or guarantees from other companies before state banks will lend to them. This interlinking of debt across Chinese companies raises the prospect of systemic failure in the financial sector, with At least 28 Dongying banks already hit by a sharp rise in loan defaults.
Chinese firms' practice of cross-guaranteeing loans to each other is storing up problems in the country's financial system. At least 28 companies in Dongying city in Shandong province are trying to restructure debts mainly because of defaults on loans made to other businesses. Private companies in China usually need significant assets or guarantees from other companies before state banks will lend to them. This interlinking of debt across Chinese companies raises the prospect of systemic failure in the financial sector, with two Dongying banks already hit by a sharp rise in loan defaults.