Reuters reports that China banks will be allowed to swap bad debt for equity in troubled companies.
Equity for NPL’s starkly conflicts with reform promises and will damage China’s economy.
1. Over supply in construction, steel, cement and aluminum will continue in conflict with State promises to halt.
2. Needed bankruptcies will be avoided, need for debt restructure eliminated.
3. Personnel lay-offs will be deferred for sake of employment numbers, not economics.
4. Production slowdowns and halts will be unnecessary, in conflict with declining demand and prices.
5. Declines in prices for major products: steel, cement, aluminum and coal, will accelerate.
6. Capital expenditures in unprofitable assets will continue.
7. Banks will have more money to lend, due to less restrictions, but won’t recognize shit “assets”.
8. Opaque reporting will be increased. Banks stock prices, already with the lowest international p/e ratios on trailing and projected eps, will continue to be low as investors are doubtful of their true health.
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