Question 2: What does direct financing mean by increasing capital and reducing debt?
There are two ways to increase capital and reduce debt by direct financing. One is to use the stock market, that is, enterprises can raise funds by issuing shares at home and abroad, thus reducing the debt burden of enterprises. The second is to issue convertible bonds to enable enterprises to raise funds. However, the former method is only applicable to listed companies, and non-listed companies cannot use this method, while the latter method is limited by the development of China's capital market.
Debt restructuring is of great significance in China's current economic life, but it is also accompanied by certain moral hazard that destroys market credit. Good market operation order and perfect accounting legal rules are essential institutional arrangements for the smooth progress of debt restructuring.
The main ways of debt restructuring are: loan to investment, direct financing to increase capital and reduce debt, debt to equity, bankruptcy debt exemption, stock cooperation and so on.
Turning loans into investments means turning corporate debts into state investments, state-owned assets, and money owed by the state to banks. However, this method also has limitations, because some enterprises owe too much, for policy reasons and for many enterprises. Therefore, this method must distinguish the specific situation of enterprises, and cannot be promoted indefinitely.