The Chinese government has approved a controversial program that will allow struggling companies’ bank debt to be swapped for equity, as Beijing moves to address growing concerns over the country’s massive debt pile. The State Council signed off on debt-for-equity swaps, the subject of a fierce policy debate this year, as part of a broader effort to reduce corporate indebtedness in the world’s second-largest economy, according to the Financial Times. Chinese companies have accumulated about $18 trillion in debt, an amount equivalent to 170% of gross domestic product. Debt-for-equity swaps were touted in March by Premier Li Keqiang, but drew fire from critics who worried that Chinese banks would simply end up swapping bad loans for shares in “zombie” companies that would be kept on life support.
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