China steps up efforts to close failed zombie companies by 2020, but faces harsh economic reality
- Liquidation plans for state-owned enterprises in regions including Hebei, Heilongjiang, Henan and Shaanxi underway, local media report
- Analysts warn that closing firms that may ‘exceed 20,000 cases’ during economic slowdown may exacerbate fears of increasing unemployment
Plans to liquidate China’s thousands of “zombie” companies are underway in several of its provinces, according to state media, as the government moves towards an aggressive target of eliminating such firms by 2020.
In December, the Chinese government set a goal of closing zombie state-owned enterprises by the end of 2020.
On February 1, the Economic Information Daily, a newspaper owned by the Xinhua News Agency, reported that various arms of the government, including regional authorities and the State-owned Assets Supervision and Administration Commission (SASAC) – the body that oversees all state assets -- are moving forward with liquidation plans in regions including Hebei, Heilongjiang, Henan and Shaanxi.
Closing thousands of such companies – consistently unprofitable firms that remain in operation only because of government subsidies or regular loans from state-owned banks – in less than two years would be an extremely ambitious undertaking in a strong economic environment.
But doing so in the midst of an economic slowdown, exacerbated by the ongoing trade war with the United States, raises questions as to how much the Chinese government can actually accomplish.
China’s economy is growing at its lowest rate for three decades, but analysts have warned that unless it addresses issues of debt and inefficiency, the slump will be prolonged.