8 Provinces Ready to Deal With Zombies, But Is China?

Eight provinces have a target list of zombie companies and production cuts that will fulfill 90% of the government's national target. If the rest of the country comes in with similar efforts, they proposed cuts could double government expectations. The article goes on to say these provinces may be looking for more government support in response to their zeal in fulfilling the government's plan. Many of these provinces are at the epicenter of coal and steel overproduction though, and have reason to be worried should they displease the leadership and become disfavored when (if) the ax ever swings.

According to "21st Century Business Herald" informed, Anhui, Hebei, Shanxi, Guizhou, Jilin, Liaoning, Shandong, Henan provinces eight steel coal industry to the production program has been submitted to the State Council.

"21st Century Business Herald" quoted policy person above provinces responsible for program drafting said, "This is the first of the eight regions." At the same time, the source said, and now the eight provinces of the coal to the production target has accounted for a national plan 90%, if the numbers add up to 31 provinces and certainly more than the country, and even doubled.

iFeng: 八省份去产能方案上报国务院 目标占国家计划90%

WSJ: China’s Missed Opportunities to Kill Zombie Companies

Despite the government’s pledge to let zombie companies go, not everyone appears to be treated equally. Smaller companies such as Dongbei Special Steel Group and iron-ore miner Zibo Hongda missed payments without a rescue-plan in sight. Meanwhile, state-owned Sinosteel has been able to extend the redemption deadline on its bonds at least five times. The risk is that China’s restructuring process fails to distinguish whether a company should be shuttered or just needs a balance sheet fix up to continue operations.

Add to this inconsistency a plan to salvage large, crumbling companies in overcapacity sectors by letting bank lenders convert debt to equity. The board of shipbuilder-turned-oil explorer China Huarong Energy in late March approved a plan to convert $2.7 billion of debt for an almost 90% stake in the company, which could just push the company’s day of reckoning to the future.

Not allowing zombie firms to fail on equal terms means there is no bottom line for investors to distinguish the real risk from the illusion of risk, or even where to start.

Meanwhile another default: China Railway Materials Co suspends debt trade, cites payment issues

State-owned China Railway Materials Co Ltd said on Monday it has sought to suspend trade in 16.8 billion yuan ($2.60 billion) worth of its debt instruments as the company struggles to make payments.

The company is the first enterprise owned by the central government to request a suspension in trading of its debt due to repayment problems. It is not, however, the first centrally state-owned enterprise (SOE) to encounter repayment difficulties.