Author: Wong, Wing-ching Venice
Title: The debt problem of China's state-owned enterprises
Degree: M.Sc.
Year: 2000
Subject: Government business enterprises -- China
Debt -- China
Hong Kong Polytechnic University -- Dissertations
Department: Multi-disciplinary Studies
Department of Business Studies
Pages: ii, 82 leaves : col. ill. ; 30 cm
Language: English
Abstract: During China's rapid transition from a planned to a market economy, the high indebtedness in state-owned enterprises has become a salient problem besetting the reform of the state sector. Over 80% of state enterprises have debt/asset ratios higher than 90%. The high debt ratio of SOEs together with the rising rate of non-performing loans of state banks have posed the biggest threat to the country's stability and prospects, in particular, affecting the normal operation of SOEs and the commercialisation of banking system. Whether or not the high debt problem could be well dealt with will have a significant impact on the reform of China's economy as a whole. Therefore, resolving the problem of high indebtedness in SOEs has become a critical issue for policy makers to find a solution and should be viewed as one of the most pressing priorities in China's reform endeavor. This study is to investigate into the root causes of the SOE high debt problem in the light of institutional approadh in order to find out whether the debt-to-equity swap program could be successfully launched to tackle the thorny problem. To evaluate the effectiveness of the new debt-for-equity scheme, a case study is applied to the analysis. It is revealed that the effective implementation of the scheme will to a large extent depends on the reform of a diversified ownership structure, a set of standards consistently applied in assets valuation, together with an effective market mechanism with less govemment intervention in Chinese economy. The policy implications drawn from the study is that the debt-to-equity scheme could not be expected to eliminate root cause of the SOE high debt problem by the single measure itself. Only when the debt-to-equity scheme is accompanied by the complementary institutional reform can the SOE high debt problem be solved once and for all. So the debt-to-equity scheme should not be used as a way to release SOEs from interest burden, but as a way for China to initiate comprehensive institutional reform in a market economy.

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