［Bloomberg］

The economic havoc wreaked by Covid-19 has had a peculiar effect on the number of Chinese companies defaulting on their debt. There’s fewer of them. 6park.com
As of mid-April, China’s bond market has recorded 19% fewer defaults than it did in the same period of last year. That's because preserving jobs has become the priority as the coronavirus continues to suppress commerce around the world, leaving little appetite to continue the deleveraging policies that contributed to two consecutive years of record defaults. 6park.com
Indeed, authorities now seem to want to save as many companies as they can. Their efforts include pushing banks to keep credit flowing to smaller businesses, which are a key source of employment but also the most vulnerable in an economic downturn. They’ve also asked that more leeway be given to companies struggling to repay loans. 6park.com
There is some evidence that these measures are helping to stabilize growth. The latest data on China’s manufacturing sector showed that although exporters are suffering, factories focused on domestic demand are rebounding. 6park.com
The danger, however, is that instead of making companies more competitive or productive, what these measures have done is to cover up their shortcomings. Even worse would be if in their rush to keep companies afloat, authorities end up creating even more zombie companies. 6park.com
These are entities that don’t earn enough revenue to sustain themselves and instead depend on government largess to keep going. Left unchecked, they can build up ever bigger piles of debt that puts stress on the financial system and leaves less money available for more innovative companies. 6park.com
Another pitfall is in the banking system. China’s ability to call on giant state-owned lenders to provide more financing to smaller businesses means it can mobilize support quickly. But the more aggressively banks lend, the more they are often susceptible to bad loans. 6park.com
Ultimately, the decision Beijing has to make is how much of the future should be mortgaged to fix the present. Financial markets are betting that it’s more. With millions out of work and a very uncertain outlook, more looks like a pretty strong argument.