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'Zombie companies' adjust to new reality

By Du Juan (China Daily)

Updated: 2016-03-15 07:19:14


"So, instead of cutting output, its production target rose to 2.65 million tons for 2016," Du said. "Some big mines with huge losses are helping their miners to work in other sectors, such as their logistics units within the company. It's a long process with practical difficulties."

The government's commitment to address overcapacity chimes with its economic reform agenda, through which the nation plans to shift to supply-side structural reform, something Beijing has put high on its agenda.

The government will establish a fund of 100 billion yuan to assist those made redundant as a result of industrial restructuring, according to the Ministry of Industry and Information Technology.

When Wuzhou Shipyard went bankrupt, the parent company paid out in full its obligations to employees who had lost their jobs. Regional governments are preparing to meet similar obligations.

Chen Naike, a deputy to the National People's Congress, the nation's top legislature, said it is vital that workers losing their jobs get subsidies and help in adjusting.

Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute, said the central government plans to cut the nation's production of crude steel by between 100 million tons and 150 million tons in the next five years.

Li said that means 500,000 employees in the steel industry will have to find new work.

"Currently, there are more than 300,000 employees in zombie companies in the labor-intensive steel industry," Li said. "It will be a priority for the government to deal with those people effectively."

He said China's steel companies' debt ratios average around 70 percent while in some cases it is even higher.

"For instance, a steel company, which has already stopped production, had a total debt of more than 10 billion yuan and its assets were only worth 6 billion yuan," said Li. "Another steel company has a severe wage arrears problem of more than 360 million yuan. Such big debt issues are hard for the local government or a single company to solve."

In addition to the government's determination to reform inefficient and unsustainable industries, financial institutions are also playing their part in killing off zombie companies.

They have been asked not to lend money to steel, coal and nonferrous metals companies that have been blacklisted because of their overcapacity.

Meanwhile, financial institutions are doing their best to protect companies' assets by preventing zombie companies from transferring funds illegally.

The government says it wants to see financial reserves, land and human resources flow toward other promising industries when zombie companies close.

And Bao said many of his former colleagues are already moving on and have been finding other work.

"A young technician I worked with found a job with a cruise company," Bao said. "Opportunities are emerging in new industries like this."

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