China's hidden debt problem

China's shipping dragon rests where the Yangtze River flow towards the sea north of Shanghai, which was previously the rising nation's biggest private ship builder became quieter on a recent morning whereby China Rongsheng Heavy Industries Group Holdings Ltd's 38,000 employees went jobless as the the company struggled to stay afloat over the past 2 years. With 80% of the employees being sacked, the restaurants and shops serving them have since closed.

After accumulating $4.1 billion in debts, Rongsheng seeked a government bailout is a example of a company overly invested that have gone bust.

Source: http://www.businessweek.com/news/2013-11-18/credit-driven-china-glut-threatens-to-turn-into-bank-debt-crisis

Many of China's companies are facing these issues as the domestic consumption of the population remained low and bank funding to companies not being able to land in the correct place.

People of china sees property investment as the safest form and would save up to buy a property which have already inflated a bubble in the China's property market, therefore affecting domestic spending.

The company funds that were borrowed did not contribute effectively to the economy because of the lack of demand for products and services, but the CEOs and the directors were still being paid. These people became richer and those funds that they earned goes into other parts of the world while the company's financial position is in a bad state. This is one of a similar occurrence that happened during the Lehman Brother's financial crisis whereby bankers were so well paid that even if the company went burst, the employees benefited from it in the expense of the company.

The problem had been hidden by the China's government though, but when it became too big to be hidden, the financial world will take a huge plunge.