CHINA TOPIX

Updated 8:44 AM EDT, Wed, Aug 18, 2021

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China to Reveal Plans for 'Zombie Firms'

China Daily Life - Steel Economy

(Photo : Getty Images) A Chinese steel worker walks past steel rods at a plant on April 6, 2016 in Tangshan, Hebei province, China.

With growing problems linked to China's so-called 'zombie' companies, authorities have announced that a detailed plan will soon be released to lessen overcapacity.

According to China's economic planner and the Ministry of Industry and Information Technology, the plan will support banks to impose differentiated credit laws to firms across various fields.

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Also, there will be an agreement between banks and firms to differentiate inquiries and give efficient financing services.

Under the new guidelines, more support will be provided to companies that are starting or upgrading to traditional ones. Moreover, financial establishments will be encouraged to provide long-term loans to tech companies, tech equipment factories and other industries.

However, the new guidelines also stipulate that loans to 'zombie' companies that have suffered continuous losses or have remained unpaid will be withdrawn or cut off.

China's industrial firms (aluminum, paper, and steel) have reported gross overproduction capacity problem, soaring as high as 13 percent in 2015 from just 0 percent in 2007.

Earlier this year, China vowed to clean up these 'zombie' companies by 2020. Zhang Yi, the chairman of China's Assets Supervision and Administration Commission's (SASAC), said the agency will fix the growing problem of unviable 'zombie' companies over the next three years, according to Reuters.

In September 2015, the Chinese government rolled out an ambitious plan to reform these companies through "mixed ownership" promotion as well as merging and acquisition encouragements.

Zhang Xiwu, SAAC's deputy head, also said China plans to centralize state-owned capital to key markets and restrict investments that are incongruent with the existing national standards.

These 'zombie' companies, which are indebted businesses, are only surviving with the help of the government and banks. Although these are generating cash revenues, these companies only have funds enough to pay off the interest on their loans and not the capital debt itself.

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