Provinces Drag Heels on Overcapacity Cuts, Push Credit to Zombies

Reuters: China's provinces enlist banks to defy overcapacity cuts
In Shanxi province, China's top coal producing region, the government told financial institutions to maintain coal sector lending at least at last year's levels, increase awareness of the industry's "pillar and strategic status" and not recall loans to seven local government-owned coal groups, according to a document released on the government's website in May.

Shanxi's deputy governor Wang Yixin told banks at an industry event on Wednesday that it was in their mutual interest to support the seven, which at the end of 2015 reported total liabilities of more than 1 trillion yuan ($150 billion) and an average liability-to-asset ratio of about 83 percent, according to Reuters calculations.

"What Shanxi's good coal companies need the most right now is the confidence of investors and the help from financial institutions - as we cross the river on the same boat," Wang said, and urged banks to roll over the companies' loans and buy their bonds.

Three senior executives at China's top coal producers all said they could secure loans at a rate equal to or lower than the central bank's benchmark rate, suggesting banks were lending a sympathetic ear to that call.

"In China, the most important thing is stability," said a manager at the Shanxi branch of one of China's big four state-owned asset management companies that help banks dispose distressed loans.
China.org: Excess coal output cut by 29% in H1
Local governments and state-owned firms in China have completed 29 percent of the 2016 coal overcapacity reduction target in the first six months, with some regions still yet to take concrete action, officials said Tuesday.

Seventeen provincial-level governments and some of the country's largest state-owned companies have jointly cut 72.27 million tonnes in coal production capacity, about 29 percent of the 250-million-tonne coal reduction target for the year, according to the National Development and Reform Commission.

Central province Hunan and eastern province Jiangsu completed 82.9 and 78.2 percent of their cuts in the first six months, while Beijing, the northern province of Shanxi and northwestern Xinjiang were halfway through. Nine other provinces have yet to make any dent to their coal production overcapacity.
Cut 100 percent on December 31. Goal hit! The real worry isn't the slowness to cut production, but the increase in debt. Slowly reducing overcapacity amid a short-term price bounce is understandable and there's not a guarantee of trouble down the road. Add more debt to a zombie firm and a crisis is a near certainty.

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