Regulatory mismatch threatens China NPL plans

Author: Brian Yap | Published: 9 Sep 2016

Chinese central and the local governments have taken inconsistent approaches over the country's RMB1 trillion ($149 billion) debt-to-equity swap policy, and the execution of swaps under the programme.

The State Council, China’s cabinet, released a policy paper on July 18 giving its green-light to the much-debated debt-equity conversion programme. This was followed by a new document issued on August 22 urging non-financial enterprises, such as suppliers, to swap their accounts receivable for equity in their indebted clients.

But counsel in China point to misalignments between the central government and municipal authorities over what enterprises should be allowed to conduct swaps, and how they should be carried out.

"The key hurdle to the government-supported swaps is whether they will be conducted according to policy guidelines or to the market," said Tiecheng Yang, partner at Clifford Chance in Beijing. 

PRC financial institutions had created RMB2 trillion worth  of NPLs by...