A labourer loads steel wire coils at a steel market in Taiyuan, Shanxi province, China © Reuters Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) 5 Save 11 HOURS AGO by: Gabriel Wildau in Shanghai The bank regulator in a rust-belt Chinese province has urged regional lenders to roll over maturing loans to struggling coal and steel companies, a policy that cuts against the Communist party’s pledge to shut down “zombie” enterprises. Investors widely assume that Chinese banks keep lossmaking companies on life support by rolling over maturing loans, often under pressure from local governments. But it is rare for a government official to acknowledge the practice. The admission could also inflame criticisms of China by trading partners who argue that state-directed bank loans and other subsidies have enabled cheap Chinese steel to flood global markets, driving competitors out of business. President Xi Jinping has pledged a policy of “supply-side structural reform” to reduce rampant excess capacity in sectors such as steel, coal and non-ferrous metals. But doing so requires enduring worker lay-offs, slow growth and lost tax revenue as unprofitable firms exit. At a press conference on Thursday, the director of the Banking Regulatory Bureau in north-east China’s Heilongjiang province said his agency had “co-ordinated” with creditors to roll over loans to coal and steel companies that cannot repay principal. Bao Zumin said that, in some cases, creditor committees had even agreed to increase loans. North-east China — which relies heavily on mining and state-owned heavy industry — has suffered the most from China’s economic slowdown in recent years. Liaoning province reported a 23 per cent fall in nominal gross domestic product in 2016, after provincial officials acknowledged falsifying economic data for previous years. Neighbouring Heilongjiang and Dongbei provinces show similar trends. Creditor committees have emerged as an important mechanism for negotiations among local governments, creditors and borrowers. Mr Bao said committees for 155 state-owned enterprises in the province had formed. Companies, including privately owned Jianlong Group, the province’s largest steel manufacturer, and state-owned Longmay Group, its largest coal producer, benefited from the policy, according to Caixin, a respected Chinese financial news website, which cited comments by Mr Bao following the press conference. Mr Bao emphasised that banks implemented the forbearance policy “under the premise of marketisation” based on judgments about which companies were likely to return to health. Companies were not eligible for rollovers if they could not meet interest payments, according to Caixin. Profits at Chinese coal and steel companies revived last year amid a rally in commodity prices. But in the long term, analysts expect Chinese commodity demand to fall, casting doubt on whether struggling groups can ever recover. China’s banking sector surpassed the eurozone this year to become the world’s largest by assets. Guo Shuqing, who took over as chairman of the China Banking Regulatory Commission in March, has reportedly pledged to resign if the sector becomes a “complete mess”.