UPDATE 1-China says banks to help wind down overcapacity

Fri Jul 5, 2013 4:06am EDT

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BEIJING, July 5 (Reuters) - China's government vowed on Friday to harness its financial sector to help bring about an orderly closing of some factories in industries plagued by overcapacity, as it seeks to move the economy up the value chain.

The statement by the State Council, or cabinet, laid out broad plans to ensure that the financial sector supports the kind of economic rebalancing that Beijing is aiming for, as it looks to shift focus to more high-end manufacturing.

"The government will adopt differentiated policies based on the varied situations in the industries plagued by overcapacity," the government said in a statement.

It explained that for some businesses that it thought had competitive products, it would continue to ensure that credit flows to them so that they can survive, but that for others it would work with banks to oversee a gradual winding down of their businesses.

"The guideline shows China's policymakers will focus more on economic restructuring to stabilise the economy rather than providing more liquidity to support economic growth," said Li Huiyong, an economist at Shenyin Wanguo Securities in Shanghai.

The slowdown in the world's second-largest economy has started to put pressure on some businesses in industries plagued by overcapacity.

On Friday, China Rongsheng Heavy Industries Group, China's largest private shipbuilder, appealed for financial help from the government and big shareholders, after cutting its workforce and delaying payments to suppliers.

Besides trying to engineer a winding down of some manufacturing capacity, the government said it would look for ways of channeling the country's massive foreign exchange reserves to support Chinese companies' expansion overseas.

It reiterated a pledge to gradually liberalise interest rates, and said that it would not back off from its longer-term push for reforms on account of a short-term slowdown in economic growth.

The central bank and several financial regulatory agencies issued a statement on the guidelines at a news conference on Friday, pledging that they would balance ensuring growth and pressing ahead with financial reforms.

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