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As China tackles corporate debt, risks spread wider 

October 28, 2016

Sumeet Chatterjee and Shu Zhang, Reuters

China's plan to curb spiraling bank debt at weak state-owned companies could shift growing credit risks away from financial institutions and to the country's private investors, analysts say.

Beijing earlier this month unveiled much-awaited guidelines for a plan to lower the country's $18 trillion corporate debt - now at 169 percent of domestic output - by allowing stressed companies to swap part of their debt for equity investment.

So far, two such debt-reduction deals involving indebted state-owned firms have been announced: China Construction Bank Corp units will buy debt from some creditors to Yunnan Tin Group Co and Wuhan Iron and Steel Group Corp and swap it for equity in companies of the respective groups.

China's efforts to curb corporate leverage in the system, especially among state-owned companies, are targeted at reviving a slowing economy.

But analysts say the structuring of such transactions pushes the risk to other parts of the economy, specifically the individual investor. Read more

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