BEIJING, Sept 15 China will support asset
management companies converting debt into equity stakes for
steel and coal firms, and provide credit support to competitive
companies with overcapacity issues, the country's top banking
Debt has emerged as one of China's biggest challenges, with
the total load rising to 250 percent of gross domestic product
(GDP) last year.
The International Monetary Fund warned in June that China's
high corporate debt ratio of 145 percent of GDP could erode
economic growth if not addressed.
In a bid to rejuvenate its economy, China is aiming to
eliminate failing, debt-ridden firms, but it has also pledged to
help "restructure" companies that are suffering severe
operational challenges but remain basically competitive.
Officials have insisted that the new debt-to-equity
programme would not be used to prop up so-called "zombie
enterprises", those that would not survive without life support
from local banks and governments.
Speaking at a meeting of Chinese banks, Shang Fulin, head of
the China Banking Regulatory Commission, said such zombie firms
which have long been loss making and are uncompetitive will be
taken out of the market or restructured in an orderly way.
Competitive firms which have a market and are in sectors hit
by overcapacity will continue to get credit support, he added.
Asset management companies will be supported, in accordance
with legal and market principles, to convert debt to equity for
steel and coal companies, Shang said.
His comments were carried on the regulator's website late on
Wednesday. There were no details on what kind of support that
Shang also said banks have an important responsibility to
society to prevent financial risk and need to step up their risk
Chinese banks are struggling with rising non-performing
loans, exceeding two trillion yuan ($301 billion) and accounting
for 2.15 percent of total bank lending as of the end of May,
according to July comments by a official.
Banks need to put risk management in a more prominent
position and "prevent credit risk contagion from expanding",
Banks should drawn up lists of "zombie" firms and those
affected by overcapacity, and strengthen stress tests and risk
analysis on property loans, he added.
(Reporting by Ben Blanchard and Ma Rong; Editing by Kim