Date
24 October 2017
Constrained by heavy loan burdens, low profitability and a lack of technology, zombie firms find it hard to overcome their fate. Photo: AFP
Constrained by heavy loan burdens, low profitability and a lack of technology, zombie firms find it hard to overcome their fate. Photo: AFP

Why China’s zombie firms cannot dig themselves out of their hole

Wang Ming works for a “zombie” company owned by a regional government.

Hearing the repeated pledges by the mainland’s top leaders to shut down excessive capacity and allow heavily indebted, uncompetitive companies to fail, Wang is worried all the time about his job.

But deep down in his heart, he believes that zombie firms — companies that have been suffering from chronic losses and have to rely on subsidies, loans and other government handouts to remain in operation – are going to stick around for a long while.

“If my company suspends production, it will directly affect the livelihood of 100,000 people in the area,” he told mainland media.

“Including downstream companies and other suppliers that depend on our firm, that is another 100,000 people.”

Wang’s county has a population of 300,000.

It is hard to imagine what would happen if his company actually went bankrupt.

Wang’s firm is a good example of why many local authorities are said to be unwilling to follow the central government’s call to eradicate zombie companies.

“We also want to upgrade our product, but we don’t know how,” Wang said.

The lack of the right technology and innovative ability is preventing many zombie firms from escaping their tough situation.

Industries where most zombie companies are found include steel, coal, cement and shipbuilding, which have almost nothing in common with booming new-economy sectors like technology, pharmaceuticals, education and entertainment.

Redemption is next to impossible for the zombie firms.

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FL

EJ Insight writer

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