China: Accelerating structural reforms – ING

Tim Condon, Chief Economist at ING, suggests that China’s supply-side structural reform is not of the Thatcher-Reagan kind and in particular, they expect differentiated lending policy will prevent credit events at large SOEs.

Key Quotes

“The China Securities Journal reported that the NDRC and the MIIT are accelerating the preparation of plans to restructure zombie enterprises with a view to running pilots in a number of cities this year. The circular released by the eight ministries in mid-February on “differentiated” – the term featured prominently in the recent “authoritative voice” interview – lending policy for industrial restructuring in overcapacity industries was the first time we saw “zombie enterprises” in an official document.

We expect the uptick in official mention of supply-side structural reform to be at least partly matched in practice.

The central SOE whose suspension of trade in CNY 16.8 trillion of debt instruments in mid-April triggered the SASAC probe of SOE bonds issued by 106 central SOEs said it would repay a CNY 1 billion bond when it matures next Tuesday.

Supply-side structural reform is not of the Thatcher-Reagan kind, in our view. In particular, we expect differentiated lending policy will prevent credit events at large SOEs.”