CHINA should let the market play a bigger role in dealing with bond defaults and local governments should reduce support for defaulting firms, a newspaper owned by the country’s central bank said in a commentary Saturday.

    If not, investors will lose the ability to assess real risks and fail to solve real problems, and issuers should not maliciously default on debt that will destroy market order, the Financial News newspaper said.

    The Central Government will continue using market and legal ways to deal with “zombie” companies and insolvent State-owned enterprises as the Central Government aims to press ahead with supply-side reform, it added in the commentary.

    China has seen a growing number of bond defaults over the past two years but investors have made relatively small losses after repayment deadlines were extended or restructured.

    A media report Tuesday cited anonymous sources who said Liaoning provincial officials were petitioning the Central Government to permit Dongbei Special Steel Group Co. to use debt-to-equity swaps, which the Central Government has mooted as one solution to China’s corporate debt problem.

    Dongbei Special Steel, an unlisted steelmaker, has defaulted on at least seven debt instruments this year, causing headaches for one of its primary debt underwriters, China Development Bank, and the provincial government of Liaoning that owns the firm. (SD-Agencies)