Its hard to pick which nation will spark the next major banking crisis. But the latest moves out of China are certainly troubling. Over there, a new debt relief plan for debt-laden companies has been added to a growing list of systemic financial risks that includes unsustainable credit growth and credit-driven malinvestment.
The debt relief plan, unveiled earlier this month by Chinas State Council, would allow Chinese companies to reduce their $18 trillion corporate debt burden by swapping some of that debt into equity. The debt-to-equity swap guidelines, first floated back in March, encourage companies to deleverage by offering bank lenders equity ownership in return for debt forgiveness.
To the discerning reader, that sounds…
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