State-owned Chinese Firms Borrowing Far More Than Private Firms Despite Lagging Profits
The share of corporate loans to state-owned Chinese firms has increased substantially in recent years compared to loans to private firms, even though profits at state-owned firms lag far behind. The trend reflects the growing role of the financial system in propping up underperforming companies and may drag down future growth for China. The chart shows the share of loans to state-owned firms jumped from 28 percent in 2011 to 69 percent in 2015 (latest available data). The total amount of investment in state-owned firms increased by 20 percent during this time, but their profits grew just 2 percent, based on data from the China National Bureau of Statistics, Ministry of Finance, and Nicholas R. Lardy’s calculations. Private companies have investment returns that are three to four times higher than state-owned firms, but the latter have had easier access to bank credit in recent years.
This PIIE Chart was adapted from Lardy’s presentation at the January 11, 2018 event, The New Era of Chinese Economy and China’s Financial Opening-Up.