Reuters

SHANGHAI (Reuters) - Chinese firms will face further pressure to deleverage, which has become the "new normal", and conglomerates LeEco and Dalian Wanda Group were now bearing the consequences of their high borrowings, the People's Daily newspaper said on Monday.

 

The mouthpiece of the ruling Communist Party said that recent leadership changes at LeEco and deals to sell Wanda's hotels and tourism businesses showed that the era of relying on high debt to spur growth was over.

 

"These may look like singular events, but there's a red line that runs through them: the era of relying on high leverage and high debt, of eating next year's food supply this year for brutal growth, is over," said the article, published in the People's Daily's economics pages.

 

Beijing is trying to defuse what many analysts think is a debt time bomb and in recent months has stepped up a campaign to pressure some of the country's biggest and most successful companies to reel in their borrowing and spending.

 

Wanda declined to comment while LeEco did not immediately respond to a request for comment.

 

The fact that China's four largest banks were ranked within the world's 500 largest firms should not be reason for glee, People's Daily said, adding that, instead, the lenders should consider how better to serve the country's manufacturing sector.

"The real economy is the foundation of China's economic prosperity. Finance is its water and is indispensable, but you cannot put the cart before the horse," it said.

"No matter how good a hoe is, if it does not farm nor create harvests, it has no value."

Chinese tech conglomerate LeEco, one of China's most ambitious companies that grew from a Netflix-like video website to a business empire spanning smartphones to cars within 13 years, is facing a cash crunch that has forced its founder Jia Yueting out as chairman of its main-listed unit.

Sources have also told Reuters that Chinese banks have been told to stop providing funding for several of Wanda's overseas acquisitions as Beijing tries to curb the conglomerate's offshore buying spree.

Last month, Wanda announced that it would sell 77 hotels in China to Guangzhou R&F Properties for 19.9 billion yuan ($2.95 billion), and a total of 91 percent equity in 13 tourism projects to Sunac China for 43.8 billion yuan.

(Reporting by Brenda Goh; Additional Reporting from Clare Jim in HONG KONG and Jessica Macy Yu in TAIPEI; Editing by Muralikumar Anantharaman)