Central governments have always wanted to get rid of huge, bad debts, but there are no policies that clearly define what bad debts are exactly or how to deal with them. As a result, many local governments mix some high quality assets with bad ones, bankrupt them, and thus escape the loans from banks.
From Caijing.com.cn:
Xinlike escaped debts worth 3.3 billion yuan (US＄ 433 million) from banks by forcing high quality state-owned assets into bankruptcy.Xinlike is not the only company that has implemented this “good” idea. Fan Xiaochuan, general manager of an electricity manufacturer in Yantai , a coastal city located in Shandong Province , recently told Caijing that some companies he cooperated with successfully restructured after owing large debts to him.
“We won the lawsuit, but we can find no one to compensate our loss.” Fan said.
In fact, for local companies, escaping debts from Fan is not the main concern. Rather, what the companies really want is to get rid of the debts with local banks. [Full Text]
