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A Bunch Of Industries Are Collapsing In China's Bad Debt Nightmare

Chinese non-performing loans (NPL) reached 456.4 billion yuan at the end of the second quarter, but the non-performing loan ratio held steady at 0.9 percent.

Many have questioned the accuracy of the 0.9 percent figure. And we've previously reported that the Chinese government is making the problem worse by plying "zombie companies" with more cash and is underplaying the bad debt problem.

But the China Banking Regulatory Commission (CBRC) is getting extremely anxious about the NPLs. Since July, it has issued six notices about credit risks associated with underground lending, developers, local-government financing vehicles, etc. And with good reason.

The number of companies in default or with severe cash flow problems has surged since the second quarter, according to Societe Generale's Wei Yao.

"Apart from a couple of property developers, several sectors, including steel trading, shipbuilding and solar panel manufacturing, seem to be running off the cliff all together.

The economic slowdown does not seem to be the only cause, and, in many cases, not even the major one. The common mistakes include involvement in speculative activities (eg. property speculation or commodity trading), massive capacity expansion (eg. shipbuilding and solar panel manufacturing), outsized commitments to complicated webs of mutual loan guarantees and high exposure to underground banking (eg. many SMEs in Zhejiang)."

This table from Yao shows the most high-profile cases of companies being bankrupted by non-performing loans in the past three months. And the footnote points out that all of the top 10 Chinese solar panel makers have liquidity problems:

Socgen china NPL table