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345 ‘zombie’ enterprises to be cleaned up

Lyu Chang
Updated: May 22,2016 11:27 AM     China Daily

China will press ahead with merging and revamping State-owned enterprises and plans over the next three years to clean up 345 “zombie” enterprises to unlock their vitality, according to a senior official.

“Last year’s SOE reorganizations clearly proved effective, so we will keep putting our efforts into the work this year,” Zhang Xiwu, deputy chief of the State-owned Assets Supervision and Administration Commission, said on May 20 at a briefing in Beijing on SOE reform.

Zombie enterprises are unprofitable SOEs burdened by debt, mismanagement or overcapacity.

Zhang said the SOE cleanup effort is in line with the national strategy and will optimize resources in key industries. In 2015, the State Council, China’s Cabinet, approved mergers of 12 State-owned companies in such industries as shipping, railway and telecommunications.

Addressing concerns that a consolidation into a single entity could yield a monopoly, Zhang said that would be unlikely. The commission is putting regulations and procedures in place to protect other companies’ from unfair business practices.

The consolidation efforts fit in with government measures to improve SOEs’ competitiveness, a major task outlined in this year’s Government Work Report, delivered in March by Premier Li Keqiang.

Earlier this week, Premier Li said at an executive meeting that SOEs need to “lose weight and get fit”. As outlined in the Government Work Report, their overhaul through innovation, restructuring and personnel management reform would help revitalize the economy.

Simultaneously, the government will close zombie enterprises that weigh down the economy.

In all, zombie enterprises will be reorganized or closed within three years, and the country’s coal and steel capacity will be reduced by 10 percent within two years, according to Zhang.

Coal, iron and steel are among the key target sectors in the effort to reduce excess capacity.

Amid a slowing economic growth, SOEs, which are vital to the country’s social and economic development, must rid themselves of inefficient and declining businesses, experts said.

Li Daokui, an economic adviser and a Tsinghua University economics professor, said that this is the key year in national restructuring, and if all SOE and urbanization reforms are put in place this year, the economy’s downward trend is expected to hit bottom at the earliest by the second half of the year.

“With some oversupplied industries, merger is considered a good way to diminish the surplus, so I’m not surprised to see more restructuring coming on this year,” he said, predicting that economic growth will see a slight rebound in 2018.

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