Work scheme on handling “zombie enterprises” under drafting

A series of policies are about to be introduced soon in order to propel supply-side reform and beef up de-capacity. It is learnt by China Securities Journal that the National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology (MIIT) are drafting a proposal on dealing with “zombie enterprises”, which is to be launched in a faster pace. Different policies will be carried out to tackle the problem of overcapacity in different industries. In terms of financial support, the MIIT and China Banking Regulatory Commission (CBRC) have formulated a bank-enterprise docking plan, set up a list on financing demand of key enterprises and key projects through building a docking service platform, support banks to implement differentiated credit policy according to characteristics of different industries and different enterprises, and will conduct pilots in about 20 cities across China this year.

A slew of policies have been introduced to reduce production capacity in various fields since the beginning of this year. In early February, the State Council released suggestions on resolving excessive capacity of iron and steel industry and coal industry to get rid of dilemma, which put forward targets of reducing production capacity of iron and steel industry and coal industry. Soon afterwards, several ministries and commissions including the Ministry of Finance, Ministry of Human Resources and Social Security, Ministry of Land and Resources, Ministry of Environmental Protection, People’s Bank of China (PBOC), State Administration of Taxation, General Administration of Quality Supervision, Inspection and Quarantine, State Administration of Work Safety, CBRC and State Administration of Coal Mine Safety have studied and worked out eight supporting policy documents centering on fiscal and financial support, staff resettlement, land, environmental protection, quality, safety and other aspects, which are under printing and issuing.    

As supporting measures on reforms of the way of de-capacity, way of supporting fund allocation, debt treatment scheme, staff resettlement scheme and vitalizing land resources are gradually implemented, experts advise adopting market mechanism, economic means and rule of law to reduce overcapacity prudently, facilitate optimization of industrial structure, make breakthrough in coming out and improve quality and efficiency. This move should be promoted by the market, led by enterprises and organized by local regions with central government’s support. It should also make the focal points stand out and abide by laws and rules. Overcapacity is expected to be cleared quickly as work on dealing with “zombie enterprises” sees actual operation. The next move will focus on mergers and reorganizations of overcapacity industries and the high-quality enterprises with competitiveness will be reborn.

Regarding credit policy, several suggestions on finance supporting stable growth, structural adjustment and benefit improvement in industry jointly released by eight ministries and commissions including the PBOC proposed to carry out differentiated industrial credit policies. It put forward providing more supports in hi-tech enterprises, significant technology equipment, projects strengthening industrial bases and other fields so as to pull through the overcapacity enterprises which are promising. Meanwhile, it should withdraw relevant loans from the “zombie enterprises” with severe overcapacity or those enterprises which fail to meet the requirements of environmental protection or safety production and may not achieve any result after rectification.

Various measures on de-capacity should be adopted in terms of credit policy, according to Guan Qingyou, executive director of Minsheng Securities Research Institute in Beijing. The government should practice differentiated credit policy and work together with financial enterprises to ensure stable economic development during the process of de-capacity. Central and local governments should make concerted effort to reward and subsidize related enterprises, properly handle personnel placement and other problems and encourage enterprises’ transformation and upgrading so as to achieve the target of reducing capacity with comprehensive means.