It’s early 2007 all over again. Slightly different tune, but it sure rhymes a lot!
Eleven shadow banks have written an open letter to the top Communist party official in northern China’s Hebei province asking for a bailout that would enable the bankrupt credit guarantee company to continue to backstop loans to borrowers. If the guarantor cannot pay, it could spark defaults on at least 24 high-yielding wealth management products (WMPs).
Analysts worry that a series of bailouts in recent years has encouraged irresponsible lending by fueling the perception the government will not tolerate default. The latest appeal for a bailout will again force officials to choose between ensuring short-term financial stability or imposing market discipline on investors, which should improve lending practices in the long term.