Chinese zombie firms' debt risks 'may come to life' as economy slows in 2015
Under 'new normal growth' the day of the failing but protected company is nigh, official warns
The debt problems of failing "zombie" companies that local governments keep ticking over with undeserved support could come to life as the economy slows next year, a senior official has warned.
Yang Weimin, a deputy head of the Office of the Central Leading Group for Finance and Economic Affairs, delivered the assessment while explaining China's "new normal" policy of economic growth - slower but greener and more sustainable expansion - at a forum in Beijing on the weekend.
At the end of their annual Central Economic Work Conference early this month, top leaders warned that various risks such as high leverage and bubbles would persist for some time.
While the post-meeting statement did not spell out any specific growth targets for next year, other officials, government think tanks and analysts largely agreed that the 2015 growth target would slow to about 7 per cent.
Yang said that while overcapacity had been apparent in some sectors for some time, local governments often protected non-performing local companies - openly or in secret - through subsidies or by asking banks to provide loans .
"Every region hoped that overcapacity would be cut somewhere else, so it turned out all provinces were supporting such businesses … As soon as such 'blood transfusions' stop when economic growth falters, that's when the debt problems of 'zombie' companies emerge," said Yang, according to a report by business media firm Caixin.