PBOC, CBRC ask banks to fund good firms

China Daily - - BUSINESS - By JIANG XUEQING jiangx­ue­qing@ chi­nadaily.com.cn

Chi­nese fi­nan­cial in­sti­tu­tions should not use their role in serv­ing the real econ­omy as an ex­cuse to help “zom­bie com­pa­nies” and in­stead must help trou­bled firms with good fun­da­men­tals to ride out short-term dif­fi­cul­ties, se­nior of­fi­cials said.

In China, the term zom­bie com­pa­nies refers to in­ef­fi­cient or loss-mak­ing en­ter­prises whose pro­duc­tion fa­cil­i­ties are out­dated and debt is mount­ing or un­man­age­able.

Liu Guo­qiang, as­sis­tant gover­nor of the Peo­ple’s Bank of China, the cen­tral bank, said at the Fi­nan­cial Street Fo­rum 2017 in Bei­jing on Fri­day: “Fi­nan­cial in­sti­tu­tions must re­duce fund­ing for so-called zom­bie com­pa­nies, lower hid­den lo­cal gov­ern­ment debts and com­bat spec­u­la­tion in real es­tate to save fi­nan­cial re­sources for other parts of the real econ­omy that meet the re­quire­ments of China’s sup­ply-side re­form, so that we’ll be able to cul­ti­vate a new eco­nomic struc­ture and a new drive for growth.”

Wang Zhaox­ing, vice-chair­man of the China Bank­ing Reg­u­la­tory Com­mis­sion, the coun­try’s top bank­ing reg­u­la­tor, agreed, say­ing banks will con­tinue to op­ti­mize credit al­lo­ca­tion and strongly sup­port re­duc­tion of ex­cess ca­pac­ity.

Wang fur­ther said that banks should iden­tify zom­bie com­pa­nies and with­draw loans from such com­pa­nies in an or­derly way.

They should also not stop lend­ing to those busi­nesses that have good po­ten­tial for growth but are ex­pe­ri­enc­ing tem­po­rary dif­fi­cul­ties. Dis­rup­tion to fund­ing for a po­ten­tially good busi­ness may in­crease fi­nan­cial risk or even trig­ger an out­break of risk, he said.

The CBRC will fur­ther pro­mote and im­prove the foun­da­tion of cred­i­tor com­mit­tees to sta­bi­lize fi­nan­cial sup­port for those good busi­nesses that are run­ning into dif­fi­cul­ties at the mo­ment, he said.

A cred­i­tor com­mit­tee is de­fined as a tem­po­rary or­ga­ni­za­tion set up by at least three banks that are cred­i­tors to a com­pany where the lat­ter is un­able to re­pay its large out­stand­ing debt.

The CBRC will also sup­port the bank­ing in­dus­try to fur­ther re­duce cor­po­rate lever­age by car­ry­ing out debt-fore­quity swaps as per mar­ket forces.

“Reg­u­la­tors will prop­erly con­trol the force and pace of fi­nan­cial reg­u­la­tion so that bank­ing in­sti­tu­tions will play a bet­ter role in resource al­lo­ca­tion and risk man­age­ment,” Wang said.

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