Goldman Sees China’s ‘Stealth’ Coal Bailout Lasting to 2020 (Bloomberg News – October 21, 2016)

China’s coal production restrictions are a “stealth” bailout for miners and their creditors that may last until the end of the decade as the policies help boost prices, according to Goldman Sachs Group Inc.

Without government intervention, China’s coal industry wouldn’t be able to service the nearly 3 trillion yuan ($444 billion) in debt from investing in new mines before demand started to drop, the banks analysts including Christian Lelong wrote in an Oct. 20 note.
The twin goals of the mining restrictions have been to develop a “safe, solvent and efficient” industry and protect the country’s financial system from the risk of large-scale defaults, they wrote.

“Production controls amount to an indirect bailout of the Chinese coal industry that minimizes the impact on the government and the financial sector, unlike more conventional methods such as subsidies and writedowns,” the analysts wrote. “Creditors, rather than mining companies, are the effective beneficiary of government intervention in the coal market.”

China’s coal production has fallen after the government of President Xi Jinping ordered miners to lower output to the equivalent of 276 days of production, down from 330 days, to help alleviate a glut.

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