China Says It Will Set ‘Red Lines’ for State Firms to Curb Debt

(Bloomberg) -- China is increasing its monitoring of indebted state-owned enterprises by creating watch lists and setting alarm levels, underscoring that the government hasn’t abandoned the goal of controlling borrowing.

The government will set two debt thresholds for state-owned firms -- one level would trigger alarms and the other would require higher regulatory attention. Firms with debt above those levels will be put on monitored lists and required to report reduction goals and deadlines, according to a plan for 2018 published on the National Development and Reform Commission’s website Wednesday.

With the economy slowing and trade tensions rising, officials are now placing more emphasis on curbing debt at state firms and in parts of the property market. The nation’s top leadership under President Xi Jinping affirmed in a statement after the politburo meeting last week that the campaign will continue, albeit at a more measured pace.

The plan indicated that “reducing SOE debts is still the key in the deleveraging campaign this year," said Zhu Qibing, chief macroeconomy analyst at BOC International China Ltd. in Beijing. “The government is unlikely to loosen its grip on the state firms.”

More innovative tools will be used in the campaign, according to the plan which was issued jointly by the NDRC, the People’s Bank of China and the Ministry of Finance. The government will trial debt-to-preferred-share swaps for non-listed companies, and also use targeted reserve requirement cuts to provide low-cost funds for previously announced debt-to equity swaps.

The overall plan has 27 different tasks, including guiding public opinion about the deleveraging campaign. That job was assigned to the Communist Party’s propaganda department and the cyberspace administration.

©2018 Bloomberg L.P.