Guangdong province has set up a special court to deal with disputes arising from the closure of “zombie enterprises”, Reuters said, citing a report from the official China Daily newspaper.
The Guangdong High People’s Court unveiled the new tribunal on Monday to help settle legal issues that might arise from the liquidation of province’s 3,385 zombie firms, with a sharp rise in bankruptcies expected in the coming years, the report said, citing a local court official.
Zombie firms are economically unviable enterprises that survive only with the support of local governments and banks.
China has vowed to take action and use tougher environmental, efficiency, quality and safety standards to drive them out of the market.
However, flaws in the country’s bankruptcy laws have made it difficult for struggling firms to exit, and local governments remain terrified about the prospect of rising unemployment.
Guangdong aims to close 2,333 zombie enterprises by the end of this year, China Daily said, and the local state asset regulator will also work to restructure or merge failing firms in the coming two to three years.
A recent study by Renmin University found 51.4 percent of listed steel firms and 44.5 percent of real estate firms could be defined as “zombie enterprises” because they were technically insolvent – unable to generate enough money to repay debt.
It said 7.5 percent of all China’s listed firms also met the criteria.
China’s central government is currently drafting detailed new guidelines to dispose of zombie enterprises, according to state media.
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