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How China plans debt deleverage without damage to the economy

The Economist with a piece on deleveraging plans in China

The government brought together officials from the finance ministry, the central bank, the banking regulator, a top planning agency & the Chinese Academy of Social Sciences

  • This week, a forum in Beijing gathered officials, bankers and academics to sift through the suggestions
  • They've homed in on corporate debt
  • There will be no rush to deleverage

3 part plan:

  1. Reducing credit to underperforming state-owned firms or restructuring them in the image of their sleeker private-sector peers. Loans would flow to better firms generating higher returns.
  2. Equity financing to help replace debt (admitting that's a difficult road - banks will swap some loans to indebted companies for equity stakes instead ... Officials insist that only viable companies will receive this treatment)
  3. Government fiscal policy to prop up growth, in effect transferring debt from corporate balance-sheets to its own

The Economist finish with:

  • Scepticism about whether China will end its credit binge is warranted
  • credit issuance has outpaced economic growth by a wide margin, raising overall debt levels
  • And China's approach to state firms is inconsistent

The full Economist piece is here, but it may be gated: Coming clean - Plans to rein in credit slowly take shape

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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