China to ensure efficient debt-to-equity swaps in the economy

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02:03

China is taking further action to stabilize the level of debt in its economy. A debt-to-equity program has been established for banks to pick indebted but viable enterprises for restructuring, through the replacement of new equity holders and management, in hopes to turn companies into profit-making entities.

During a press conference held by State Council Wednesday, Lian Weiliang, vice minister of National Development and Reform Commission said significant progress has already been achieved.

Lian Weiliang, vice minister of National Development and Reform Commission. /CGTN Photo

"As of the end of April, debt-to-equity swaps worth over 900 billion yuan 130 (130 billion U.S. dollars) have taken place. So far over 100 companies have participated in the swap. The swap program continues to expand. Now, companies from 26 industries have taken part in this initiative, including coal, mining, and energy industries just to name a few," Lian said.

Huang Xiaolong, director of Financial Stability Bureau at People's Bank of China (PBOC), concluded that since the central bank injected targeted liquidity to commercial banks for the swap programs last year, more lenders have been motivated to participate in.

Huang Xiaolong, director of Financial Stability Bureau at People's Bank of China. /CGTN Photo

"The central bank lowered the reserve requirement ratio for commercial lenders by 0.5 percentage point. That freed up about 500 billion yuan (around 72 billion U.S. dollars) specifically earmarked for the debt-to-equity program last July," Huang claimed, adding that 87 of ongoing programs have been assigned supervisors to help them improve corporate governance.

In response to the market's concerns on risk mitigation through the debt-to-equity swap process, the official from China's top banking regulator said more measures centered on risk isolation are on the way.

"We will balance growth with managing risks. For example, firms participating in debt-to-equity swaps will not be zombie firms. We'll closely monitor the entire swap process and not tolerate any attempts to hide non-performing loans," said Liu Zhiqing, the director of Statistics and Risk Monitoring from China Banking and Insurance Regulatory Commission.

Liu Zhiqing, director of Statistics and Risk Monitoring from China Banking and Insurance Regulatory Commission. /CGTN Photo

Liu emphasized that the commission has zero-tolerance on any moves that attempt to hide non-performing loans and tunneling benefits through the process.

In the next steps, China's top economic planner says it will set up a proper pricing mechanism for the swap programs. It's a bid to motivate the private sector to engage in the process as well. Publicly offered financial products and foreign investors are encouraged to take part as well.