Central Government to Provide Financial Support for Debt Restructuring

Central Government to Provide Financial Support for Debt RestructuringFinancial support will be provided by the central government to corporate debt restructuring and training of laid off workers. According to finance minister Lou Jiwei during the annual meeting of the Asian Development Bank Board of Governors that the Finance ministry’s priority is assisting China’s supply side reforms and alleviates the fallout of the painful process of shedding over capacity and piled up debt.

Subsidies will be released to support the restructuring of corporate debt and assist laid off workers by training them for their new jobs as coal and steel industries are seeing shutdowns. As China didn’t release any subsidies for coal, it has been accused by other countries of dumping cheap steel products worldwide and disrupted the global market. Subsidies are also provided to farmers to support tree planting and the use of organic fertilizers that will help in shifting to sustainable models. The country also suspended any subsidies for diesel fueled fishing boats and public buses, instead focuses in using the money to finance clean energy vessels.

The support is based on the successful transformation of Germany from the sick man of Europe to a economic powerhouse in 2000, showing that reforms can incur short term pain but will reap long term rewards in the future. Germany seized the opportunity and pushed structural reforms and its economy have gone from a post World War II miracle to nothing in the early 2000’s. Then after its bloated social welfare programs and labor rules eroded its competitiveness, then chancellor Gerhard Schroeder planned and overhaul.

Lou said that Germany’s reform of the social welfare system and improvements in the flexibility in the labor market placed the foundation of the nation’s resilience in the face of global crisis. Furthermore according to the chief economist of ADB Wei Shangjin, the money must not be used to shore up unprofitable companies in industries that are plagued by over capacity, but instead should be used in facilitating the formation of a new economy including placing laid off workers to newer jobs.

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