Zombie companies and debt levels in China

President Xi Jinping has since long promised to tackle the zombie companies and overcapacity, in sectors such as iron & steel, cement, aluminum, floating glass and others. At the same time he favors “supply-side structural reforms”. One can wonder when the slogans will be changed into substantial action.
China complains … about the USA and EU complaining about its exports of cheap steel (and some telling me the quality is not always that good…). Real closures in the iron & steel industry are still very modest in relation with the total capacity. Some factories are even restarting production, in part to solve the high unemployment in some regions; journalists to check that out are not welcome at all, threatened by groups of thugs.

Obviously it is all not easy to deal with it as a social safety net is still a vague promise. Workers demanding rear payment of many months of salaries are either beaten up or put in prison in many cases. Keeping “social stability” is still the main headache for the government.
Despite all the talk, private companies are still sidelined by the favorable treatment of SOE.

Recently bankruptcies have increased in China as reported by the Financial Times:

“China bankruptcies surge as government targets zombie enterprises”:
Chinese bankruptcies have surged this year as the government uses the legal system to deal with “zombie” companies and reduce industrial overcapacity as part of a broader effort to restructure the economy. Courts in China accepted 1,028 bankruptcy cases in the first quarter of 2016, up 52.5% from a year earlier, according to the Supreme People’s Court. Just under 20,000 cases were accepted in total between 2008 and 2015.

So, is it a promising sign? Something has to be done, while Goldman Sachs estimates that Chinese debt in the economy jumped from 130% of GDP in in 2008 to 235% in 2015. All guesses but for sure the debt levels are up up.
Not easy to get out of those challenges…

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