BEIJING (AP) – Chinese authorities unveiled plans Monday to let companies give equity in themselves to banks to pay down soaring debt levels that economists warn might hamper the country’s already slowing growth.
Companies that show “good prospects” will be allowed to negotiate swaps with lenders, the chairman of the Cabinet planning agency, the National Development and Reform Commission, said at a news conference. The official, Lian Weiliang, stressed the system was intended to use market forces to impose discipline and warned that participants who lose money will not be bailed out.
China’s total debt is unusually high for a developing country at the equivalent of about 250 percent of annual economic output. It surged after the 2008 global financial crisis as Beijing used infusions of credit to prop up economic growth.
That has prompted warnings that economic growth might suffer if high interest payments leave companies with no money to invest and has raised concern about the impact of potential defaults on the state-owned banking system.
The latest move comes as Chinese planners are in the midst of a marathon effort to make the state-dominated economy more productive by giving market forces a bigger role.