ASSESSMENTS
China's Corporate Reform Yields a Different Kind of Profit
Aug 20, 2017 | 13:05 GMT
![Fixing up China's state-owned enterprises (SOEs) has been on Beijing's to-do list for decades.](https://worldview.stratfor.com/sites/default/files/styles/2x1_full/public/china-economy.jpg?itok=_X70wUNo)
Over the past few decades, China's state-owned companies have racked up debt faster than they can pay it off.
(KEVIN FRAYER/Getty Images)
Highlights
- Chinese state-owned enterprises (SOEs) in industries that hold the bulk of the country's outstanding corporate debt, such as steel, construction and real estate, will bear the brunt of a sustained slowdown in the real estate sector.
- A larger debt-for-equity swap program will allow SOEs to offload bad loans, but it could prove to be an expensive solution if managed improperly.
- Politicians, particularly at the local level, will advocate mergers among China's large but heavily indebted firms as a less disruptive alternative to declaring bankruptcy.
- China's push to reform its foundering SOEs is less about corporatization than it is about strengthening state-owned industries — and by extension, the Communist Party's hold over the country's political economy.
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