At a meeting on further deepening the reform of State-owned enterprises, Premier Li Keqiang pointed out that we should deal with "zombie companies", long-term loss-making enterprises and inefficient assets through mergers and reorganizations, in order to increase the overall efficiency of government capital and strengthen the overall function of the SOEs.
A zombie company is one that survives simply because of the support of lenders and the government. It is an appropriate word to describe some of the SOEs in China. In certain provinces, some SOEs only ask for money and resources from the government to support their employees while failing to create any wealth or social value, while some continually borrow money from banks to pay for their old debts. Should these enterprises go bankrupt, their debts will become the banks' bad debts and local authorities have to deal with the unemployment issue. Therefore, the banks and local governments continuously provide funds and policy support to them despite their bad business performance.
Only when the governments and banks make up their mind to seriously deal with these zombie enterprises can the dynamic of the market be released.
(China Daily 11/05/2015 page8)
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