China launches multi-agency push to tackle corporate debt
Economic planner to bring together more than a dozen top government agencies to mount united policy front but there is no easy fix in sight
The State Council will bring together more than a dozen top government agencies for a series of meetings to deal with ballooning levels of corporate debt.
But the introduction of the mechanism, while demonstrating Beijing’s renewed sense of urgency over the issue, also highlights the ongoing problems the leadership faces in deciding who ultimately should foot the bill, analysts say.
The State Council said the National Development and Reform Commission would organise the meetings, and representatives from 16 agencies must attend.
The agencies include the central bank, the Finance Ministry, the banking regulator, the Communist Party’s propaganda department, the labour ministry, the Commerce Ministry, the state assets watchdog and the supreme court.
No schedule for the meetings was given and they were expected to be held on an irregular basis.
The meetings would address the estimated US$18 billion in corporate debt, in part through arranging debt-to-equity swaps and coordinating the policy response at the local level, the council said in a document released on Wednesday.
The move comes after the government reported the economy grew 6.7 per cent in the third quarter, giving the leadership policy breathing room.
“The economic recovery has given authorities time to refocus on long-term structural issues such as trimming leverage levels,” said Lin Caiyi, chief economist at Guotai Junan Securities in Shanghai. “The policy focus now is on avoiding systemic risks in the financial industry as any possible debt crisis could drag down the whole economy.”
But a quick fix is unlikely. The leadership under President Xi Jinping has made deleveraging and capacity cuts an integral part of the economic overhaul towards more sustainable growth, but there has been little progress on either front. Banks continue to lend aggressively while “zombie” companies backed by local governments are shielded from going bust.
The coal and steel industries which Beijing has vowed to downsize saw a rebound in prices this year and idle facilities have restarted production.
On Tuesday the planning agency asked key mining companies to churn out as much coal as possible within the granted quota to ease the price rally.
The push to tackle debt levels underscored the difficulty Beijing faced in sorting out who should eventually pay what was owed, economists said. The central government has repeatedly said there would be no bailouts or free lunches, but market watchers remain doubtful that an economy in which local governments, state-owned enterprises and state banks are deeply intertwined can do without sizeable government intervention.
David Qu, an economist at ANZ Bank in Shanghai, said the establishment of the new mechanism suggested previous coordination lacked efficiency. “Beijing is calling for better cooperation between different ministries,” Qu said. He noted the central bank came immediately after the economic planner in the conference system, which could mean banks would take more responsibility in future corporate debt restructuring deals.