Debt To Equity Swap Is Not Simply Turning Bank Debt Into Equity.

The last day of the 2016 sessions of the two sessions.

On this day, Premier Li Keqiang and chairman of the China Banking Regulatory Commission Shang Fulin talked about one problem: debt to equity swap.

"Debt to equity swap", that is, loans owed by enterprises to banks are converted into bank equity.

From the perspective of enterprises, huge liabilities become equity, not only do not need to repay loans, but also exempted interest, the pressure is reduced a lot; from the bank point of view, reducing the bad rate, the pressure of business will be greatly reduced.

So, this is a win-win thing.

At a news conference held in the morning of March 16th, Premier Li Keqiang said: to unswervingly develop a multi-level capital market, we can gradually reduce the leverage ratio of enterprises through the way of market debt to equity swap.

On the same day, Shang Fulin, chairman of the China Banking Regulatory Commission (CBRC), who was present at the four session of the twelve National People's Congress, said on 16 that after "Ministerial access", the bank's "debt to equity swap" is still under further study, and it needs a series of system design and technical preparation to push it away.

He said:

For debt to equity swap, the prime minister emphasized "marketization".

Emphasis is placed on legality and compliance.

Why? Because this is a double-edged sword.

So, how to play the killer of saving the Chinese economy? My view is that we can only take the mode of Zhu Rongji's "three years' escape from state-owned enterprises" and solve the problem through Asset Management Co's acquisition of bank creditor's rights.

If this model is adopted, in fact, it is quantitative easing.

In 1999, the state put forward "

Three years out of the woods, of which three of them are "debt to equity swap".

There were three specific backgrounds at that time: 1, the difficulties of state-owned enterprises; 2, China's deflation after the Asian financial turmoil was very similar to the current environment; 3, China's major commercial banks accumulated a lot of bad assets over the years.

At that time, the solution was: the state established four major Asset Management Co, namely the Great Wall, XinDa, Huarong and orient, which corresponded to the acquisition and management of NBC, CCB, ICBC and Bank of China's bad assets.

National Adoption

The central bank can refinance loans to Asset Management Co, and Asset Management Co can also raise funds for issuing low interest bonds to major banks.

Then, Asset Management Co used the money to acquire the bad assets of major banks and replace big banks as shareholders of debt enterprises.

Through such pactions, banks have lost the burden of bad loans, and they have been able to go back to the capital in order to go back to light.

But in this process, the total amount of money in the whole society inevitably rises.

If we control the M2 growth rate and CPI, the "expropriation" of the public interest is not very obvious.

If the currency is out of control, it will cost the whole people the cost.

The reason why "debt to equity swap" is forced to come out again is that China's stock market is too weak to undertake the task of "raising the proportion of direct financing" and leveraging the debt.

The registration system has been postponed. The strategic emerging industry board is also aborted. In order to stabilize the stock market, the rhythm of IPO can not be speeded up.

At this time, in addition to revitalizing the bond market, it can only be "debt to equity swap".

Although "debt to equity swap" has a very good effect in saving the economy in a very special period, the negative effects should not be ignored.

First, it may give the zombie enterprises a chance to be reborn, and a large number of small and medium-sized innovative enterprises still have difficulty in obtaining loan opportunities.

Because the main force in arrears of bank loans is obviously state-owned enterprises, which are traditional industries.

It is worth noting that in the process of debt to equity swap, administrative power may again become the dominant force.

Second, a considerable amount of capital from "debt to equity swap" will come from the central bank, which is equivalent to putting the basic currency and equivalent to quantitative easing.

Eventually, the rise in the money supply may also stimulate CPI to pick up.

The total amount of debt to equity swap launched in 1999 will reach 1 trillion and 400 billion, and the scale of this round will surely be small.

If fully launched, it is estimated that the number of "quasi reduction" will be reduced, otherwise the currency will become more inevitable.