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China bankruptcies rise amid 'zombie firm' crackdown

(english.legalinfo.gov.cn) Updated : 2017-08-09

Chinese courts handled nearly 2,000 bankruptcy cases in the first seven months of 2017, up 28.3 percent over the same period last year, as the country launched a nationwide crackdown on “zombie firms” - loss-making firms that continue to operate only with the help of bailouts -- said a senior official of China’s Supreme People’s Court (SPC).

China had made great efforts to improve the country's bankruptcy system, utilizing modern techniques including big data to identify “zombie companies”, handle layoffs and reduce overcapacity, He Xiaorong, a senior director at the SPC, told a news briefing on Aug 3.

Up to 3,602 bankruptcy cases were settled across China in 2016, increasing by 43.4 percent over 2015, according to He. Up to June 2017, the country had 90 special courtrooms designated for settling account-clearing and bankruptcy cases. The number was only five in early 2015, He added.

The SPC will continue to “actively handle” bankruptcy cases and streamline bankruptcy mechanisms, part of its efforts to establish an ideal judicial environment for bringing insolvency cases to the courts, said He.

China vowed in 2016 to make better use of its capital, labor and resources by cracking down on “zombie firms”, which have become a problem in a country battling severe overcapacity in key industrial sectors such as steel and coal.

A report released by Renmin University of China in 2016 found that in 2000, about 30 percent of China's industrial firms were "zombies". During the 2005-2013 period, they represented around 7.5 percent.