China to speed up restructuring of zombie SOEs

The restructuring of unprofitable State-owned enterprises will be boosted to unleash their potential from the constraints of nonbusiness operations, such as schools and hospitals, to enhance industrial profits.

An executive meeting of the State Council presided over by Premier Li Keqiang on Wednesday decided to speed up the restructuring of "zombie enterprises" to encourage the market-oriented allocation of resources, a statement released after the meeting said.

The meeting pledged support for the SOEs to shake off their "historic burden", a term often used to describe the nonbusiness operations of SOEs, such as schools and hospitals - common establishments for super-powerful industrial giants born during the era of a planned economy.

Profits for China's major industrial enterprises fell by 0.1 percent year-on-year in September, narrowing from the 8.8-percent decline posted in August, according to the National Bureau of Statistics.

State-owned industrial companies saw their profits plummet by 24.4 percent during the first nine months of the year, while private companies offered a brighter outlook, with profits rising by 7.1 percent in the same period.

At such a crucial moment, it is necessary to "put forth efforts to stabilize industrial growth, prioritize its structure and improve efficiency", the statement said, a vital step in job creation and maintaining good momentum for economic growth.

Zhang Chunxiao, an expert with the State-Owned Assets Supervision and Administration Commission, said the government's move aims to prioritize State assets and improve efficiency.

"Zombie enterprise generally refers to unprofitable businesses," he said.

He said these could be companies burdened by debt, mismanagement or overcapacity.

A zombie enterprise can also be the remaining part of a company that, after being divested so the company can be listed, has lost the capability to make a profit.

China Reform Holdings Corp Ltd, set up in 2010, is one of the platforms in the country to help manage State assets.

"There will definitely be more asset management companies of this kind," Zhang said.

The draft 13th Five-Year Plan (2016-20), approved by the fifth plenary session of the 18th Communist Party of China's Central Committee last month, proposed to deepen SOE reform to strengthen vitality and control and reduce risks.