China Bolsters Efforts to Reduce SOE Debt
Zhu Yanran
/SOURCE : Yicai
China Bolsters Efforts to Reduce SOE Debt

(Yicai Global) Aug. 9 -- Five Chinese government departments including top economic planner, the National Development and Reform Commission, will work together to reduce the corporate leverage ratio in an effort to resolve debt risks involving the country's state-owned enterprises.

Authorities will set up a mechanism to prevent and control corporate debt risks, according to a guideline released by the five central departments. They will also improve an early warning system for corporate debt risks.

China has made progress on deleveraging in recent years resulting in the country's leverage ratio falling gradually. The ratio was 2.4 percentage points higher annually in 2017, 10.9 percentage points lower than the average annual growth rate from 2012 to 2016.

The parties will work together on debt-to-equity swap projects, while institutional financing channels. They will also accelerate the disposal of loss-making zombie companies' debt while boosting policies for debt disposal and legal bankruptcy procedures through the removal of barriers. Mergers and restructuring will also be actively promoted, said the guideline.

The State-owned Assets Supervision and Administration Commission will also reinforce the balance sheet constraints among SOEs, SASAC Associate Researcher Zhou Lisha told Yicai Global. The asset-liability ratio is regarded as a basic controlling indicator, and SASAC will employ differentiated management methods over different industries and conduct adjustments as needed.

The SASAC will gradually change the bank-based indirect financing model to offer SOEs access to direct financing in the capital market, Zhou said, as part of efforts to let the market act as a test of the SOEs' own strength.

"We will reduce SOEs' dependency on loans. Direct financing helps reduce enterprises' cost of funds, relieve their pressure from the repayment of both capital and interest, and bring more vitality to the SOEs' operations," she added.

Editor: William Clegg

 

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Keywords: State-Owned Enterprises , Balance Sheet Constraint , State-Owned Assets Supervision And Administration Committee