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Economy

NDRC measures make bankruptcy easier for failing companies in China

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2019-07-17 09:36:59Global Times Editor : Li Yan ECNS App Download

China's top economic planning agency on Tuesday announced measures aimed at creating a more convenient and cheaper path for what it called "inefficient" market entities and individuals to file for bankruptcy.

The guidelines released by the National Development and Reform and Commission (NDRC) along with 12 other central government agencies underline intensifying efforts from policymakers to phase out zombie companies, which are widely believed to pose a major challenge for the Chinese economy as it shifts toward high-quality growth.

China will gradually establish an "exit system" for all types of market entities, including state-owned enterprises, which ensures smooth procedures and significantly lower costs for "inefficient market entities to speed up their exit" from the market, the guidelines said.

The guidelines also said that China would establish a mechanism for individuals that are related to troubled companies to file bankruptcy, focusing on addressing debt issues individuals accumulated from their positions at the companies.

The system for individual bankruptcy could be tested in some selected cities starting the second of 2019, according to a report in the official financial news website cs.com.cn on Tuesday.

More effort will be directed toward the closure of grossly underperforming and heavily indebted state-owned zombie companies, according to the guidelines. 

"All relevant parties shall not in any way obstruct the exit of SOEs suitable for bankruptcy," the guidelines read, adding that lifelines for zombie companies such as government subsidies and loans will be cut and their "unwillingness" to file for bankruptcy will be "effectively handled."

The guidelines suggest that the government will "guide or force" zombie companies out of the market through proper government policies.

 Arguing that zombie companies are distorting market competition and impeding the economy, Chinese officials have in recent years stepped up efforts to shut down thousands of them. 

In 2018 alone, more than 1,900 such entities were closed, resulting in a drop in losses of more than 200 billion yuan ($29.1 billion) compared with 2015, Xiao Yaqing, then chairman of the State-owned Assets Supervision and Administration Commission, said at a press conference in March.

There is also renewed urgency for Chinese policymakers to accelerate the phasing out of underperforming companies and improve corporate efficiency, as the world's second-largest economy faces a slowdown.

The guidelines came a day after official data showed that China's GDP grew 6.2 percent year-on-year in the second quarter of 2019, a still impressive rate compared with other major economies but also the slowest pace in 27 decades for China.

While a protracted trade war with the US might be having some impact, Chinese officials and analysts said the biggest challenge for the economy is the transformation from focusing on exports, low-end manufacturing, heavy industry and property to high-quality growth.

Chinese officials are vowing to take more targeted measures to improve business conditions and stabilize growth.

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