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China must fight its addiction to debt

China must fight its addiction to debt

Private and state-owned companies, local administrations and private households have accumulated huge mountains of debt. The government knows the risks and wants to reduce them. Your problem: If it becomes serious, it can cause severe distress.

In many places in China, farming villages soon had to give way to high-rise apartment buildings like this one. This has so far paid off for local administrations, property developers and new owners. But now the government wants white-collar exaggerations.

Kelay Shane/Bloomberg

When the Evergrande management felt a few months ago that it was becoming increasingly difficult to obtain new loans from Chinese banks, they quickly developed a new model for securing liquidity: management forced employees, customers and suppliers to borrow and promised them attractive returns of up to 25 percent. Ding Yumei, wife of Evergrande founder Xu Jian, set a good example by investing $3 million. Instead of borrowing money from banks, Evergrande now borrowed money from well-meaning employees and customers. Given the potential bankruptcy of the real estate developer, they are now threatened with huge losses.