speed up reform, including the reform of coal
circulation. The regulatory system acts on the
external part of the industry. The internal impetus
for coal industry reform should be developed.
Given the fundamental role of the coal industry
in the economy and society, central government
should focus on coal circulation reform.
Suggestions are outlined below.
First, the optimisation and transformation of
coal supply in China should be coordinated with
air pollution prevention, the energy demand
revolution and the development of traditional
industries like steel in order to study coal circulation reform systematically. Details of the
reform should reflect the global nature of coal
circulation, including logistics and the flow of
capital and information. The objective of coal
circulation regulation reform can only be turned
into actions through design excellence and systematic implementation.
Second, the parties involved in circulation
should be encouraged to innovate. Reform of the
coal industry needs to stimulate the industry’s
development. This should be in the form of
technical and methodological innovation,
including clean coal processing technologies,
logistics, process visualisation, information integration and new circulation methods. The launch
of new pilot projects should be considered.
6.4.5 Deepen the Reform
of State-Owned Coal
Companies
China should seize the policy opportunities of
supply-side reform and state-owned capital management reform in order to speed up the optimisation of capital stock and eliminate inefficient
capacity. At the same time, efforts should be made
to promote the two-way flow of capital, coordinate
exit and entry into the market, optimise the internal
structure of the coal industry, improve the operations of coal companies, and accelerate innovation
and transition through reform.
Staff and debt are the two main barriers to
exiting inefficient capital stock in traditional
enterprises. The challenge of repositioning staff
can be addressed, but the debt barrier is more
difficult to surmount. Debt is the priority when it
comes to exiting inefficient capital stock. The
policies to reduce debt and make short-term debt
repayments focus on debt-for-equity swaps. This
shows that exiting inefficient capital stock can be
combined with swapping debt for equity.
The current challenges include: (i) Inefficient
capital that needs to be exited cannot rely on
debt-for-equity swaps. In the past, assets undergoing a debt-for-equity swap could rapidly enter
a new round of the profit cycle, but inefficient
assets with high debt now have little market
value. Financial institutions typically issue a
debt-for-equity swap based on profit expectations
for assets with potential profitability, not for
inefficient assets without any prospect of profitable development; (ii) the entity that issues the
debt-for-equity swap is the parent company of a
group, not the subsidiary operating the inefficient
asset. In the early 21st century, a group would
have relatively undiversified businesses, and the
group would be the principal debtor. The case is
different now: a large group typically has a
diversified business portfolio, and the debtor of
an inefficient asset is usually the subsidiary that
operates the asset. If the debt-for-equity swap is
carried out within the group, it does not solve the
challenge of exiting the debts of inefficient
assets. Suggestions are outlined below.
First, the purpose of debt-for-equity swaps
should be made clear—it is to spin off inefficient
assets and lower the asset to debt ratio of companies, and, more importantly, to improve the
operational efficiency of the real economy.
Second, an inefficient asset disposal platform
should be established. Inefficient assets can be
packaged and optimised or reorganised by business group or region to facilitate consistent
implementation of the debt-for-equity swap
policy.
Third, exit channels in financial institutions
should be innovated. The financial policies for
cutting overcapacity can be leveraged, and the
opportunities to reform state-owned capital
investment and introduce mixed ownership can
be used to innovate financial capital exit channels
in a market-oriented manner.
488
S. Yaodong and A. Gillespie
circulation. The regulatory system acts on the
external part of the industry. The internal impetus
for coal industry reform should be developed.
Given the fundamental role of the coal industry
in the economy and society, central government
should focus on coal circulation reform.
Suggestions are outlined below.
First, the optimisation and transformation of
coal supply in China should be coordinated with
air pollution prevention, the energy demand
revolution and the development of traditional
industries like steel in order to study coal circulation reform systematically. Details of the
reform should reflect the global nature of coal
circulation, including logistics and the flow of
capital and information. The objective of coal
circulation regulation reform can only be turned
into actions through design excellence and systematic implementation.
Second, the parties involved in circulation
should be encouraged to innovate. Reform of the
coal industry needs to stimulate the industry’s
development. This should be in the form of
technical and methodological innovation,
including clean coal processing technologies,
logistics, process visualisation, information integration and new circulation methods. The launch
of new pilot projects should be considered.
6.4.5 Deepen the Reform
of State-Owned Coal
Companies
China should seize the policy opportunities of
supply-side reform and state-owned capital management reform in order to speed up the optimisation of capital stock and eliminate inefficient
capacity. At the same time, efforts should be made
to promote the two-way flow of capital, coordinate
exit and entry into the market, optimise the internal
structure of the coal industry, improve the operations of coal companies, and accelerate innovation
and transition through reform.
Staff and debt are the two main barriers to
exiting inefficient capital stock in traditional
enterprises. The challenge of repositioning staff
can be addressed, but the debt barrier is more
difficult to surmount. Debt is the priority when it
comes to exiting inefficient capital stock. The
policies to reduce debt and make short-term debt
repayments focus on debt-for-equity swaps. This
shows that exiting inefficient capital stock can be
combined with swapping debt for equity.
The current challenges include: (i) Inefficient
capital that needs to be exited cannot rely on
debt-for-equity swaps. In the past, assets undergoing a debt-for-equity swap could rapidly enter
a new round of the profit cycle, but inefficient
assets with high debt now have little market
value. Financial institutions typically issue a
debt-for-equity swap based on profit expectations
for assets with potential profitability, not for
inefficient assets without any prospect of profitable development; (ii) the entity that issues the
debt-for-equity swap is the parent company of a
group, not the subsidiary operating the inefficient
asset. In the early 21st century, a group would
have relatively undiversified businesses, and the
group would be the principal debtor. The case is
different now: a large group typically has a
diversified business portfolio, and the debtor of
an inefficient asset is usually the subsidiary that
operates the asset. If the debt-for-equity swap is
carried out within the group, it does not solve the
challenge of exiting the debts of inefficient
assets. Suggestions are outlined below.
First, the purpose of debt-for-equity swaps
should be made clear—it is to spin off inefficient
assets and lower the asset to debt ratio of companies, and, more importantly, to improve the
operational efficiency of the real economy.
Second, an inefficient asset disposal platform
should be established. Inefficient assets can be
packaged and optimised or reorganised by business group or region to facilitate consistent
implementation of the debt-for-equity swap
policy.
Third, exit channels in financial institutions
should be innovated. The financial policies for
cutting overcapacity can be leveraged, and the
opportunities to reform state-owned capital
investment and introduce mixed ownership can
be used to innovate financial capital exit channels
in a market-oriented manner.
488
S. Yaodong and A. Gillespie