HomeProduct Complimentary download Mounting debts could derail China plans to cut steel, coal glut

Mounting debts could derail China plans to cut steel, coal glut

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Publish time: 23rd March, 2016      Source: www.cnchemicals.com
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China''s campaign to slim down its bloated industries could be derailed by more than $1.5 trillion of debt in its steel, coal, cement and non-ferrous metal sectors, which threatens to overwhelm local banks, Reuters reported on March 23.The four sectors targeted in the battle against overcapacity owe around 10.2 trillion yuan ($1.56 trillion), according to documents submitted to parliament by Wang Mingsheng, head of Anhui-based coal firm Huaibei Mining.China is providing more than 100 billion yuan ($15 billion) in the next two years to handle layoffs from coal and steel, but that will only be made available once debts have been settled.Costs for the estimated 1.3 million coal-sector layoffs alone are as much as 195 billion yuan, and coal industry delegates attending parliament urged government to provide more support to deal with the mounting debts of hundreds of stricken "zombie" firms.China''s statistics bureau puts coal and steel debts alone at 8 trillion yuan, of which about a third is bank debt.If 20% of that were to go bad in 2016, which industry analysts say is not unrealistic, it would raise Chinese banks'' non-performing loans by nearly half.Bankers say city and regional banks set up by party or provincial government officials are most exposed, and that official NPLs, which already doubled last year, underestimate the scale of their problem lending."China needs to set up a new organization, a special bank just to take over these debts in order to avoid the local banks going bankrupt," said steel industry consultant Xu Zhongbo.As well as seeking cuts in value-added tax and relief from expensive "social functions" like healthcare and education, the coal delegates urged government to provide additional funding and policy support, and establish "debt-to-equity" mechanisms to handle the problem.In plans published in February, Beijing promised to slash 100-150 million tonnes, or up to 12.5%, of crude steel capacity and as much as 500 million tonnes, or 9%, of coal production in over three to five years.The February policy documents also said China would create a special mechanism to restructure industry debts and non-performing assets while introducing incentives to write off bad debts or transfer them to specialist asset managers, but officials said more specific measures were required.The action plans said China would rely mostly on "market methods" to solve debt problems.CCR cordially invites you to participate in the 6th Global Coking Coal Resource & Market Summit to be held from 24th to 25th March 2016 in Taiyuan, Shanxi Province. The summit will provide professional insights on great changes that will impact market players over the mid and long term and how they should cement their positions in the market. For more details, please contact Gina Cao at +86 351 7219322 / gina.cao@fwenergy.com or click HERE.