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In 1999 China began the conversion policy of worthless debts of national enterprises into share capital in order to promote enterprises to overcome large scale deficits created by poor governmental economic policy. By the end of 2000, the Financial Assets Administration Corporation and the National Development Bank carried the conversion scheme into execution, reduced the worthless debts of 4 large commercial banks by 1400 billion RMB, and concluded the conversion contract with 580 national enterprises totaling 405 billion RMB. This paper discusses the background, implemented measures, policy and methods of the conversion. The conversion of worthless debts into share capital means that the Financial Assets Administration Corporation becomes the primary owner of the enterprises in charge of accumulated worthless debts of them. Previously, huge worthless debts adversely affected Chinese economic development and financial systems. For example, in 1998 the worthless debts totaled 25-26% of the People's China Bank gross financing. The goal of the conversion is ; 1) to make conditions for recovery from huge deficits operation of national enterprises, and 2) to make 4 large commercial banks' operation and balance sheets healthier. Under the rules of the conversion of worthless debts into share capital, the Financial Assets Administration Corporation buys the worthless debts of enterprises from correspondent banks, After that, the worthless debts are converted into share capital of the enterprises according to the fixed conversion rate of one to one. After the conversion, the debt ratio of the enterprises reduced from 70% to under 50%. By the end of 2000, 80% of unprofitable enterprises turned into profitable ones, and the disposition of worthless debts began in 2001 taking all kinds of measures such as reclamation of principal and interest, discharge in articles, debt reduction, confiscation of pledges, conveyance of credits and bankruptcy. The conversion policy has been an aggressive and important strategy for the Chinese government to take in order to overcome enterprises' debts problems and to avoid financial crises during economic restructuring. There may be still unavoidable risks in case of failure in disposition of worthless debts. Still remains one more challenge. The conversion of worthless debts into share capital in itself is not sufficient. Development of capital markets (share markets) is essential for social circulation of the share capital to prevail.