One of the Chinese government’s emerging strategies for dealing with problem loans in the banking sector is a debt-for-equity programme — under which banks would write off struggling companies’ debts in return for taking equity stakes in them.
However, many analysts object to this plan, which state media have reported will initially involve up to Rmb1tn ($154bn) in problem loans. Past bank crises, they say,
have shown that lenders should write off non-performing assets immediately, or pass them on to specially created “bad bank” vehicles. Delaying the inevitable simply incurs more pain at a later date.
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