Zombie enterprises parasites that need to be eradicated

A little girl passes by a reform slogan. [Photo/IC]

NING JIZHE, vice-minister of the National Development and Reform Commission, China's top economic planner, pledged on Friday to make extra efforts to deal with consistently loss-making, debt-laden State-owned enterprises, so-called zombie enterprises. Beijing News commented on Friday:

One key initiative in reducing excess capacity, as Premier Li Keqiang noted in this year's Government Work Report, is to shut down those companies without productive operations that feast on government subsidies or bank loans. These parasites are facing a moment of truth as the central government has vowed to deal with them.

What constitutes a "zombie enterprise" should be made clear as soon as possible. Enterprises that are in debt and financially incapable of getting back into profit, for example, cannot be mistaken as anything but failed.

Yet local governments are often tempted to turn a blind eye to these zombie enterprises because putting them to rest would "taint" the performance evaluations of local officials. Or else they "meddle" with the business operations of these enterprises in the name of trying to revive them.

Therefore, the laws designed to protect State-owned assets should be revised as necessary, so that these zombie enterprises are put out of their misery.

This should not be difficult given the common sense that an enterprise that is unable to pay its debts, be it State-controlled or private, is by any definition bankrupt. However, the real nuts that are hard to crack are always those companies with government subsidies and official endorsement.

This highlights the need to formulate a binding definition to identify the zombie enterprises and make sure they do not resort to rent-seeking for their pointless survival.