The risk of “triangular debt” is growing in China29 August, 2012, 14:06. Posted by Zarathustra
Only just a few days ago, a few government ministries and departments started to be concerned about the so-called “triangular debt”.
In very simply terms, “triangular debt” simply describes a situation where companies owe money to each other. The cause for the rise of such liabilities were usually that companies trying to delay payments of their bills to suppliers, so that account receivables (and of course, payables) increase, causing liquidity issues for some companies as they cannot get paid, thus cannot pay their bills.
This is not a new problem. Indeed, China faced one episode in the 1990s when “triangular debt” became quite a concern for the government. As the economy slows much more than expected, the government is once again concerned.
After some preliminary fact-finding, Economic Information reports that the risk from “triangular debt” is indeed growing, but to varying degrees. The problem of “triangular debt” in machinery production, coal, and steel industries, in particular, appears to be among the most serious. For steel industry, in particular, should the market remains weak for longer, the risks that inter-company liabilities may rise more substantially in the near future.
Although we have no idea just how large this problem is, we do not quite like the fact that we have something new to worry about.