China has been quite successful in encouraging foreign investments since the Sino-Foreign Equity Joint Venture Enterprise Law was promulgated in the beginning of the country’s economic reform in 1979.
With the passage of time, the Chinese government has recognized the limitations of the old case-by-case approval regime which is typically time-consuming and burdensome for foreign investors. The government has sought to test various reform measures as seen through the establishment of several Free Trade Zones and new rules that only applied within the boundaries of these Free Trade Zones.
As China continues to grapple with a slowing economy, its banks are facing an increasing number of overdue loans. Companies large and small, particularly in the industrial sectors, are finding themselves heavily indebted and dealing with substantial overcapacity issues. In this climate, a new strategy has recently emerged that may provide some relief to both banks and companies: paying off overdue debt with company equity. However, while banks and companies may see short-term benefits from improvements to their balance sheets flowing from such arrangements, some experts are predicting that banks taking equity interests in struggling companies will only put off hard choices and ultimately prevent a necessary, long-term reorganization of the economy. Read more at The New York Times DealBook.
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