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China's corporate debt risks rising but manageable: IMF [Copy link] 中文

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Post time 2016-4-14 10:08:17 |Display all floors
WASHINGTON - China's corporate debt risks are rising, but the costs of addressing potential losses on bank lending remain manageable, the International Monetary Fund (IMF) said Wednesday.
"Despite progress on economic rebalancing, corporate health in China is declining due to slowing growth and lower profitability," Jose Vinals, director of the IMF's monetary and capital markets department, said  ...

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Post time 2016-4-14 10:08:26 |Display all floors
Recently many temporary schemes have been floated and suggested as solutions to this debt problem especially for banks, such as debt-for-equity etc. In the case, as I have suggested here, only preferred shares should be used in the debt-for-equity scheme in order to avoid conflict of interests problem, and moreover, only preferred shares under my SPS model (i.e. cumulative preferred shares with a perpetual PUT OPTION at the higher of VAT or cost, thus putting the preferred shares equivalent in quality with bonds) should be considered in order not to diminish the ratings of the lenders or banks. However, even under such a scheme, there are two ways of implementation to consider. One is to bundle all the non-performing assets (from all the banks) into a separate "bad-debt" corporation managed separately by professionals and have this "bad-debt" corporation issue the preferred shares to the participating banks. This way of implementation has the advantage portfolio diversification and expert professional management among others and may result in faster turn around to profitability of the managed assets. It also relieves the banks of the burden of extra management resources. The other way of implementation is for the bank to manage its own non-performing assets which allows the bank to maintain its relationship with its clients and taking a closer responsibility to solve its own problems, but, it can also put extra burden on the bank's management resources. Anyway, it must be recognized that these are only temporary solutions. Ultimately, China must realize that a better set of rules and laws must be put into place towards better risk management in a market economy.

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