turning a profit but survive through continual injections of fresh credit.
Such perpetual refinancing avoids short-term economic pain by keeping factories humming and workers employed at infrastructure construction sites. But in the long run, zombies suck the lifeblood from the economy.
That is an especially big problem for China, where small- and medium-sized enterprises account for 60 percent of gross domestic product and around 75 percent of new jobs but have long struggled to get access to credit.
China's economic growth has slowed for 12 of the last 14 quarters, and 2013 is likely to be the slowest full-year growth since 1990, with the official 7.5 percent target seen ambitious and double-digit growth rates now considered firmly a thing of the past.
"(China's) economic growth since 2009 has been fueled disproportionately by a credit binge that left local governments and their state enterprises with a lot of debt they cannot repay," Arthur Kroeber, managing director of GK Dragonomics, a Beijing-based research firm, wrote in a recent research note. "The risk of Japan-style rot is substantial."
THE RISKIEST DEBT
Reuters analysed 1,166 trust loans issued in 2012, using data purchased from Use-Trust Studio, a research firm based in Jiangxi province that has compiled the most comprehensive public database of trust and wealth-management products. Trusts surpassed insurance companies last year to become the second-largest sector of China's financial system by assets, behind commercial banks.
The trusts Reuters analysed totaled 234 billion yuan, or roughly 8 percent of 3 trillion yuan in trust loans issued in 2012, Reuters estimates.
Trusts also comprise the largest component of China's shadow banking sector, which includes a range of non-bank lenders from securities brokerages to curbside loan sharks.
Trust loans offer a useful window into China's debt problems. Unlike banks, trusts typically disclose the identity of their borrowers in the marketing materials they use to attract investors, along with some detail on how the funds will supposedly be used.
But because trusts cater to borrowers who can't access credit from traditional banks or the bond and equity markets, the Use-Trust data also sheds light on the normally opaque world of shadow banking, where analysts fear the riskiest