Chinese firms' practice of cross-guaranteeing loans to each other is storing up problems in the country's financial system. The guarantor itself is very likely to have taken on loans guaranteed by other firms. 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. The problem has been exacerbated by a lack of confidence among investors and lenders that China's economic recovery can be sustained.
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. The problem has been exacerbated by a lack of confidence among investors and lenders that China's economic recovery can be sustained.