Posted on 29 Feb 2016
China has vowed to tackle price-sapping supply gluts in major industrial sectors, and said earlier this month that it would close 100 million-150 million tonnes of steel capacity and 500 million tonnes of coal production in the coming three to five years.
The government intends to eliminate hundreds of so-called “zombie enterprises” – loss-making firms in struggling sectors that are being kept alive by local governments trying to avoid job losses and a surge in bad debts.
“The central government has decided to establish dedicated industrial enterprise restructuring funds of 100 billion yuan (US$15.31bil) over two years, which will be used to solve the problem of worker placement,” said vice minister of industry Feng Fei.
Feng told reporters the “main principle” of the restructuring policy would be the deployment of market forces, but the central government needed to offer a helping hand to local authorities to deal with layoffs.
Feng said China was trying to encourage mergers rather than bankruptcies in a bid to reduce the risk of unemployment, but the central government had to act to remove some of the obstacles that were impeding the restructuring efforts.
“Local governments have to stop extending credit to zombie firms, and banks need to stop offering loans,” he said.
