FT: Local government, banks collusion keeping firms afloat

A study of the private sector in Zhejiang conducted by FT Confidential Research, a unit of the Financial Times, found companies struggling with an ever-greater debt burden as the economy has slowed and orders have dried up.  The situation would be considerably worse — possibly even at crisis levels — were it not for the collusion of local government officials and local banks, none of whom are incentivized to recognize the problem. The local government leans on local banks to keep the credit flowing in, companies are taking on ever-larger amounts of debt to service a growing loan burden, while the bankers reckon the real level of bad loans is as high as 30% of total lending.