Study: Solving 'zombie' firm issues can boost GDP

Updated 2017-12-07 09:32:58 China Daily

Resolving the problem of "zombie" firms can generate significant GDP gains of 0.7 to 1.2 percentage points per year for China over the next 10 to 15 years, IMF research said.

Debts of the country's "zombie" companies accounted for 5 to 9 percent of its total corporate debt by 2016, according to a new International Monetary Fund working paper.

Debt of companies in overcapacity sectors, such as coal, steel, cement, plated glass, aluminum and solar power, represents a share of 16 percent, the paper reported.

The State Council, China's Cabinet, defines nonviable "zombies" as firms that incur three consecutive years of losses, cannot meet environmental and technological standards, do not align with national industrial policies, and rely heavily on government or bank support to survive.

Such firms with weak fundamentals have become a key concern in China as they contribute to debt vulnerability and low productivity, and this issue is seen as one of the main reasons for the rise in corporate debts.

The Chinese government has made continuous efforts to tackle this issue through restructuring options including mergers and consolidation, liquidation, debt-equity swaps and corporate asset sales.

"In particular, deleveraging, reducing government subsidies, as well as operational restructuring through divestment and reducing redundancy have significant benefits in restoring corporate performance for 'zombie' firms," said the paper.

China has taken "deleveraging" as one of the government's top priorities.

The deleveraging process is not only about dealing with existing debts through such methods as debt-to-equity swap and clean-up of "zombie" State-owned enterprises, but also slowing accumulation of incremental debt, said Song Yu, chief China economist and vice-president of Beijing Gao Hua Securities Co Ltd.

Also in the News

Nicole Kidman Recalls Oscar Glory: Loneliest Time
Showbiz2016/06/16 13:58October 21 2018 01:41:47

Nicole Kidman Recalls Oscar Glory: Loneliest Time

Attending Shanghai International Film Festival, Nicole Kidman talks about her role in "Grace of Monaco".

Labor Day Travel Peak Starts
Also in the News2014/05/01 12:16October 21 2018 01:41:47

Labor Day Travel Peak Starts

Johnny Depp Delivers a Speech 'Evolve the Future' in 'Transcendence'
Also in the News2014/04/18 13:18October 21 2018 01:41:47

Johnny Depp Delivers a Speech 'Evolve the Future' in 'Transcendence'

Hollywood star Johnny Depp's speech in the upcoming new film "Transcendence" has been disclosed on Friday, April 11th.

China World Business Sports Showbiz Audio
C4 My Chinese Life The Sound Stage China Revealed Showbiz Video Travel Video
China World Fun Travel Entertainment Sports
Beijing Shanghai Guangzhou
Live Music Opera & Classical Movies Traditional Shows Exhibitions
Learn Chinese:
Chinese Studio Living Chinese Everyday Chinese Just For Fun Chinese Culture Buzzwords