Private companies facing punitively high borrowing costs

Private firms in China are struggling with punitively high borrowing costs even though they tend to use capital more efficiently than state-owned enterprises, research by investment bank China International Capital Corp. (CICC) shows. Caixin reports that on average, private companies needed to pay an annual interest rate of 9.9% on loans in the second quarter, about 6% points higher than those for SOEs. The gap between the two sectors’ borrowing costs was only 3% points at the end of last year. The figure may still have underestimated the real cost of debt financing for private firms, because loans offered by policy banks to SOEs normally had an interest rate much lower than the estimates used by the researchers.