China to unveil plan on ‘zombie companies’ to reduce overcapacity – report

Photo-courtesy-US-Steel.jpg

China is expected to release a detailed plan on “zombie companies” soon to reduce capacity in oversupplied industries, The China Securities News reported.

“Zombie companies” are economically unviable businesses, usually in industries with severe overcapacity, such as steel, kept alive only with aid from the government and banks.

The plan, which is being drafted by China’s economic planner and the Ministry of Industry and Information Technology, will support banks in implementing differentiated credit policies to companies in different sectors, the report said.

A platform between banks and companies will be established to better identify inquiries and provide effective financing services for companies, according to the report.

The plan will begin trials in around 20 cities nationwide this year, said the paper.

China will increase financial support to its industries as they are being encouraged to transform themselves amid the country’s industrial upgrades, according to a guideline jointly released by eight economic regulators including the People’s Bank of China.

Development of emerging sectors and upgrades to traditional ones will receive more support, and financial institutions will be encouraged to make long-term loans to high-tech firms, technical equipment manufacturing and some basic industries, said the guideline.

However, loans to “zombie companies” that have suffered continual losses and are unable to pay back their debts will be slashed or withdrawn, according to the guideline.

 

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