Resolving China's Corporate Debt Problem

Eliminating zombie companies through insolvency law in China: striking a balance between market-oriented policies and government intervention

“…As businesses with poor performance, they complicate China's rising corporate debt problem. 131 Being uncompetitive, unsustainably financed, insolvent and "stiff but deathless", 132 a number of zombie companies remain in China. If they do not exit the market in a timely and legitimate manner, these companies may cause unfair and ineffective allocation of social resources, which will distort the market and accumulate financial risks, 133 as well as hampering the sustainable recovery of the economy from the shocks of the Covid-19 pandemic.…”

Global Waves of Debt: Causes and Consequences

“…Its counterpart in the financial system could eventually reveal nonperforming loans and result in a growth slowdown in China (figure 6.9). Concerns also remain about overcapacity in some industries resulting from the debt-fueled rapid investment growth of the past decade (Maliszewski et al 2016;Wang, Wan and Song 2018;Yu and Shen 2019). Although it has recently declined, high corporate leverage, particularly in state-owned enterprises, has been associated with declining corporate profitability and financial performance (Molnar and Lu 2019;World Bank 2018b).…”