SOE Debt-to-equity Legal Analysis

As a reform and relief policy measure on a state-owned enterprise,The discussion of the debt to equity has been going since 1999. This articlenot only introduced the history , related theories of the debt to equity andthe historical background of the implementation of state-owned enterprises,but also made a more detailed analysis of the nature of the debt to equity,classification and legal risk.The debt to equity is still a fresh topic in China. It involves so manynovel systems that in many respects it is incompatible with the existing legalsystem. The main analysis is about the conflict between the debt to equityand the existing Chinese law, including:conflict With the state-ownedcommercial banks investment restrictions;the impact on the banking andfinancial relations;the conflict with the statutory provisions of the "CompanyLaw" on investment instrument;the conflict with the principle of equality inprivate law. Except to the above-conflicts with the existing Chinese laws, itintroduced the various limitations in existing practice.By analyzing on the problems and limitation in existingimplementation of equity, the author made the following recommendationsincluding: resolving bad assets with a combination of equity enterprises;strengthening the building of the modern enterprise system;intensifying theAssets company to monitor the enterprise effectively and establishing theincentive and restraint mechanisms of asset management companies, clearreporting system and information disclosure system. By the analysis of theconflict between the debt-to-equity and Chinese existing law, the paperpresented the legislative proposal to allow to expense claims.