Addressing ‘ zombie companies’ can ease fi nancial risks: Supreme Court

Bankruptcy can be an appropriate approach to handle “zombie companies” to tackle various debt chains and fundamentally resolve systemic fi nancial risks, He Xiaorong, a senior judge with China’s Supreme People’s Court, told a press briefi ng on Thursday.

He said that since last year, the government has sought to proactively and properly handle “zombie companies”, as the issue is crucial in achieving supply- side structural reform. Among various approaches to tackling “zombie companies,” bankruptcy is aligned with the rule of law and market principles.

He said the signifi cant role of the mechanism. By initiating the bankruptcy process for “zombie companies” as early as possible, it is possible to terminate the entire debt chain related to the enterprise. The debt situation can be solved in one go, and fi - nancial contagion will be eliminated.

Also, there are diff erent options in the bankruptcy procedure, which is a two- pronged strategy. Depending on the enterprise’s situation, it can be shut down or, if it retains enough value, it can be restructured, He said.

As of July 31, the people’s courts at diff erent levels had accepted and heard more than 4,700 cases related to compulsory liquidation and bankruptcy.

According to the World Bank’s assessment of the business environment of 190 economies in 2017, China’s bankruptcy handling ranked 53rd, rising by 29 places compared with the ranking in 2013.

Additionally, He noted that new technologies such as big data and cloud computing have been leveraged in trials and achieved new results. This is not merely a new resolution in the legal system for bankruptcy, it is also a positive contribution of China’s bankruptcy trial practice.

The people’s courts will strive to enhance the improvement of the external environment for bankruptcy trials. More research will be conducted on bankruptcy reorganization, bankruptcy of affi liated enterprises, management regulation and a streamlined trial mechanism, He said.

We will establish a support system for bankruptcy tax concessions and enterprise credit restoration, he noted on Thursday.