Tuesday, July 14, 2020
Martin Hennecke

China extends 'too big to fail' list
China plans to increase the number of companies it deems systemically important financial institutions (SIFIs), people familiar with the matter said, a sign that policymakers are stepping up crisis-prevention efforts as the nation's debt burden swells to unprecedented levels. Regulators led by China's central bank will initially shortlist at least 50 of the country's largest lenders, insurers and brokerages as possible SIFIs, said the people. Firms that receive the designation will be subject to extra capital requirements and may face additional rules on leverage, risk exposure, and information disclosure. Increasing the number of SIFIs, a label commonly known as "too big to fail," may help President Xi Jinping's government strengthen oversight of China's US$40 trillion (HK$313.52 trillion) financial system. Also, Chinese corporate bond defaults will likely continue to rise next year due to daunting refinancing costs, with defaults expected to concentrate on the country's cash-starved private sector, Fitch Ratings said yesterday. Availability of credit for firms to refinance their borrowings remains tight despite the central bank's monetary policy easing steps, as commercial banks continue to be cautious in lending to private companies and non-strategic, financially wobbly state-owned enterprises, Fitch said. As of the end of September, 25 corporate issuers had defaulted on payments for 52 onshore bonds worth a total of 60.6 billion yuan (HK$68.62 billion), according to data compiled by Reuters.

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