Bailout funds may be insufficient in solving the plight of China’s indebted private companies
Nov 27, 2018 (China Knowledge) - Local governments and financial firms have invested more than RMB 500 billion to set up bailout funds for private companies that are facing financial difficulties after taking on risky forms of financing through shadow banking or share pledges.
Government bodies such as the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and local provincial governments have come up with a series of relief measures such as a bailout fund of RMB 256 billion to aid these ailing companies.
Apart from local governments, asset managers, securities firms and insurance funds have also contributed funds to help these companies. Asset managers have invested RMB 70 billion, insurance funds have contributed RMB 86 billion, while securities firms such as China Galaxy Securities and Western Securities have set up funds of RMB 60 billion and RMB 10 billion respectively.
Despite these efforts, some people believe that just bailout funds may not be the silver bullet. The difficulties faced by these companies stem from the high financing costs and other deep-rooted issues. Bailout funds may be able to help these companies temporarily but do not change any of the underlying reasons. Instead, in-depth reforms are required to solve the problems in a loner run.
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