Wall Street Journal reports that Chinese regulators are speeding up ways to help banks shed bad loans, but some of the measures risk keeping "zombie" companies afloat while making lenders even more strapped for capital. The deepening economic slowdown has heightened the need for banks to have more funds to lend out. A main feature in a plan outlined by central-bank and regulatory officials over the weekend would be to let banks sell dud loans to investors either by repackaging them as securities or transferring them to special asset-management companies that handle distressed debt. Senior executives at China's Big Four state-owned banks say regulators are also exploring ways for banks to exchange bad loans for equity in certain too-big-to-fail companies—a potentially controversial step that they say could saddle banks with near-worthless stock and squeeze their liquidity. Bank of China Ltd., one of the top four lenders, recently agreed to become the largest shareholder in a publicly traded shipbuilder under the yet-to-be-disclosed plan, people close to the bank say. Officials at the central bank and banking regulatory agency declined to comment.

Wall Street Journal says that China's government is prioritizing consolidation over bankruptcies in reorganizing state companies, a senior official said, suggesting a go-slow approach in an effort seen as key to revitalizing the slowing economy. Xiao Yaqing, director of the powerful government commission that oversees state assets, said his agency will protect workers' rights as it balances competing interests in reforming the state sector. China "won't experience a wave of layoffs" as seen in the late 1990s, Mr. Xiao said at a news conference Saturday, referring to an earlier period of restructuring when tens of millions of state workers lost their jobs. Mr. Xiao praised progress made to date in reorganizing the state firms that tower over the economy in diverse strategic sectors such as oil, banking, telecommunications and more. Over the past year, the government engineered the merging of 12 big state firms into six entities, mostly in energy and transportation, and Mr. Xiao said his agency would press ahead with "more mergers and acquisitions" in the state sector while de-emphasizing bankruptcies.