THE government will support asset management companies converting debt into equity stakes for steel and coal firms, and will provide credit support to competitive companies with overcapacity issues, China’s top banking regulator said.

    Debt has emerged as one of China’s biggest challenges, with the total load rising to 250 percent of gross domestic product (GDP) last year.

    The International Monetary Fund warned in June that China’s high corporate debt ratio of 145 percent of GDP could erode economic growth if not addressed.

    In a bid to rejuvenate its economy, China is aiming to eliminate failing, debt-ridden firms, but it has also pledged to help “restructure” companies that are suffering severe operational challenges but remain basically competitive.

    Officials have insisted that the new debt-to-equity program would not be used to prop up so-called “zombie enterprises,” those that would not survive without life support from local banks and governments.

    Speaking at a meeting of Chinese banks, Shang Fulin, head of the China Banking Regulatory Commission, said such zombie firms which have long been loss making and are uncompetitive will be taken out of the market or restructured in an orderly way.

    Competitive firms which have a market and are in sectors hit by overcapacity will continue to get credit support, he added.

    Asset management companies will be supported, in accordance with legal and market principles, to convert debt to equity for steel and coal companies, Shang said.

    There were no details on what kind of support that would involve.

    Shang also said banks have an important responsibility to society to prevent financial risk and need to step up their risk management abilities.

    Chinese banks are struggling with rising nonperforming loans, exceeding two trillion yuan (US$301 billion) and accounting for 2.15 percent of total bank lending as of the end of May, according to July comments by a official.

    Banks need to put risk management in a more prominent position and “prevent credit risk contagion from expanding,” Shang said.

    Banks should drawn up lists of “zombie” firms and those affected by overcapacity, and strengthen stress tests and risk analysis on property loans, he added.(SD-Agencies)