Plan­ner: China must act to re­duce high cor­po­rate debt

The Sun (Malaysia) - - SUNBIZ -

BEI­JING: China must take ac­tion to re­duce cor­po­rate debt lev­els, with an aim to sta­bil­is­ing them in the near – and medium-term, the coun­try’s state plan­ner said yes­ter­day.

Cor­po­rate China sits on US$18 tril­lion (RM74.6 tril­lion) in debt, equiv­a­lent to about 169% of GDP, and in­ter­na­tional in­sti­tu­tions have re­cently warned Bei­jing to stop fi­nanc­ing weak firms, es­pe­cially in­ef­fi­cient state-owned en­ter­prises, which tend to crowd out the pri­vate sec­tor.

More de­faults also are needed, they say, to im­prove credit al­lo­ca­tion and stop waste­ful spend­ing in the econ­omy.

High debt lev­els have added to op­er­at­ing dif­fi­cul­ties for some Chi­nese firms, in­creas­ing their debt risks and fi­nan­cial risks, the Na­tional De­vel­op­ment and Re­form Com­mis­sion (NDRC) said in a doc­u­ment re­leased dur­ing a news brief­ing in Bei­jing.

China will al­low firms to de­velop eq­uity fi­nanc­ing and con­duct mar­ke­to­ri­ented debt-to-eq­uity swap process in an or­derly way, the doc­u­ment said.

How­ever, the swap is not a “free lunch” for trou­bled com­pa­nies, NDRC’s vice-chair Lian Weil­iang said dur­ing the brief­ing. The gov­ern­ment will not be re­spon­si­ble for losses ac­crued dur­ing the swap process, he added.

“Zom­bie” firms are strictly for­bid­den from con­duct­ing debt-to-eq­uity swaps.”

China will also step up checks at state-owned firms in or­der to re­duce debt lev­els.

How­ever, banks can­not be forced to con­duct the swaps, Lian said.

Dai Bo­hua, as­sis­tant min­is­ter at the Min­istry of Fi­nance said the gov­ern­ment will pre­vent shift of risks from non-fi­nan­cial firms to banks un­der the debt-to-eq­uity swaps.

The gov­ern­ment will also al­low firms to go bank­rupt ac­cord­ing to the law, the NDRC said.

Ac­cord­ing to a re­cent Reuters anal­y­sis, prof­its at roughly a quar­ter of Chi­nese com­pa­nies were too low in the first half of this year to cover their debt ser­vic­ing obli­ga­tions, as earn­ings lan­guish and loan bur­dens in­crease.

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