Interest chains enable enterprises to default on repaying bank loans

REPORTS SHOW THAT at least 700 enterprises managed to avoid repaying their bank debts over the past five years, which caused losses of billions of yuan to domestic banks. This year, China Banking Association submitted a number of lawsuits for banks, involving about 15 billion yuan ($2.2 billion). Although the banks won, they have still failed to get their money back, Beijing Youth Daily comments:

The phenomenon of enterprises not paying their debts is nothing new. As early as the 1990s, there were reports of enterprises going bankrupt and banks losing the money they had loaned them.

However, the phenomenon has become increasingly serious over the past few years, with some local governments and bank officials facilitating the process. Some local governments unconditionally favor local enterprises; as a result, when the enterprises suffer losses, some leading local officials often help "shift" the burden to banks by "coordinating" between the local enterprises and banks, so that the enterprises can avoid paying their debts.