A moral deficit

WEIGHED down by debt and running out of cash, Chaori Solar emerged this year as an unlikely poster child for all that was going right with the Chinese economy—because it was allowed to go under. China’s leaders had vowed to bring market discipline to a financial system that had grown lazy in its dependence on ever more credit. Chaori, the first company to default since China relaunched its bond market a decade ago, was a symbol of the new tough-love approach. But something unexpected happened this month: Chaori’s creditors were bailed out.

It is a disturbing omen for the Chinese economy. For all the talk of reform, many government officials still want to paper over bad loans. With credit going to keep moribund companies alive, China’s debt levels have soared even as growth has slowed. Overall debt, including government, corporate and household, has reached about 250% of GDP, up from 150% six years ago.