China’s dodgy-debt double act

CHINA HAS been trying to clean up its bad corporate debts for years. Although it made some progress before the pandemic, the task often seems interminable, it remains crucial for the country’s long-run economic development—and for the growing ranks of global investors with exposure to Chinese stocks and bonds. The government insists it wants more market discipline and a transparent process for letting firms default without blowing up the financial system.

Now these claims are being tested by crises at Huarong, a state-run financial conglomerate, and Evergrande, the country’s largest property firm. Together they have some $540bn of liabilities, which they will struggle to repay. Their contrasting fates show that China’s approach is still driven by politics and improvisation not market forces and the rule of law.