SCIO briefing on the banking industry’s support for supply-side structural reform

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Guo Shuqing, chairman of China Banking Regulatory Commission (CBRC),
Wang Zhaoxing, CBRC vice chairman,
Cao Yu, CBRC vice chairman,
Yang Jiacai, assistant to CBRC chairman

Hu Kaihong, spokesperson of the State Council Information Office

March 2, 2017


Just now, Mr. Guo mentioned that we need to improve the ability of financial services to serve the real economy. Since last year, a lot of debt committees have been established in China. The debt committees are aimed at solving the problems of zombie enterprises and overcapacity. Can you tell us the achievements of debt committees? Are there any further steps to be taken in reforming and innovating the system? Thanks.

Guo Shuqing:

Judging from my work experience, debt committees provide a good method. There are many banks providing loans to enterprises, especially to large and medium size enterprises. Therefore, unanimous action and deployment is welcomed by the local governments and the enterprises when it comes to the issues of enterprise structural adjustment and risk disposal. It is also beneficial for banks as it can prevent fear caused by information asymmetry. Currently, the debt committee is a good method for banks, enterprises, local governments and other stake holders to resolve problems, even serious problems, such as insolvency, bankruptcy liquidation and debt restructuring, because all parties have their resources and can negotiate together. The effect is much better in the process of dealing with zombie enterprises. We will continue to watch and determine future developments.

When I worked in Shandong, the debt committee played a great role in the process of structural adjustment and debt restructuring for a mineral group. More than 40 negotiations were held and a satisfied result was reached by all parties. Therefore, this is a good way to resolve debt issue as all parties can get the best protection for their rights.

Cao Yu:

Until the end of last year, there were 12, 836 debt committees established in China, involving a total credit amount of 14.85 trillion yuan. Through the debt committees, a win-win situation could be reached for banks and enterprises while reducing the negative influence on the daily operation of banks and enterprises brought by unilateral action. Thanks.

Bloomberg News:

My question is about debt-for-equity swaps. Will CBRC encourage more banks to participate? How to address the risk of private capital in participating? Isn’t it just prolonging the life of zombie companies and how can it be resolved? Thanks.

Guo Shuqing:

It has been highlighted that debt-for-equity swaps should follow market rules as well as the laws. Administrative orders and administrative negotiations are not allowed. Zombie enterprises are not allowed to participate in debt-for-equity swaps. We have carried out more than 40 billion yuan worth of swaps with more than 400 billion yuan in agreement. It is a sustainable method. The relevant laws and regulations will be improved during the process. However, our effort is helpful for structural reform on the supply side, especially for de-leveraging. It can also help enterprises get out of difficulties. Thanks.

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