Scribd Logo
Upload

Welcome to Scribd!

  • China Shut Zombie Businesses Help Economy

    Uploaded by

    Sudeep Keshri
    13 views3 pages
    China has overcapacity in many industries like steel and coal that is depressing global prices and needs to shut down "zombie" businesses that are only surviving due to government support. However, China has been reluctant to act for fear of increased unemployment. China accumulated a large debt problem between 2008-2015 by encouraging excessive lending to prop up growth during the financial crisis. China now needs economic reforms like reducing industrial capacity, strengthening its social safety net for displaced workers, and reforming its bankruptcy system to better handle the debts of failing companies.

    Original Description:

    View on China Manufacturing Slowdown

    Original Title

    China Should Shut Down Zombie Businesses to Help the Economy - The New York Times

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    China has overcapacity in many industries like steel and coal that is depressing global prices and needs to shut down "zombie" businesses that are only surviving due to government support. However, China has been reluctant to act for fear of increased unemployment. China accumulated a large debt problem between 2008-2015 by encouraging excessive lending to prop up growth during the financial crisis. China now needs economic reforms like reducing industrial capacity, strengthening its social safety net for displaced workers, and reforming its bankruptcy system to better handle the debts of failing companies.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    13 views3 pages

    China Shut Zombie Businesses Help Economy

    Uploaded by

    Sudeep Keshri
    China has overcapacity in many industries like steel and coal that is depressing global prices and needs to shut down "zombie" businesses that are only surviving due to government support. However, China has been reluctant to act for fear of increased unemployment. China accumulated a large debt problem between 2008-2015 by encouraging excessive lending to prop up growth during the financial crisis. China now needs economic reforms like reducing industrial capacity, strengthening its social safety net for displaced workers, and reforming its bankruptcy system to better handle the debts of failing companies.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 3

    http://nyti.

    ms/1WFWWbx

    TheOpinionPages

    EDI TORI AL

    ChinaShouldShutDownZombie
    BusinessestoHelptheEconomy
    ByTHEEDITORIALBOARD

    JUNE9,2016

    Chinaknowsthatithastoshutdownsteelmills,coalminesandotherindustrial
    unitsthatareproducingmuchmoreofjustabouteverythingthantheworld
    needs,depressingpricesandhurtingbusinessesandworkerseverywhere.Butthe
    governmenthasbeenreluctanttoactforfearofthrowingmillionsoutofwork
    anddamagingChinesebanksthathavelentmoneytowhatareessentiallyzombie
    businesseskeptalivebygovernmentpolicies.
    ThatfearhelpsexplainwhyChineseofficialspushedbackwhentheObama
    administrationdemandedduringthisweeksU.S.ChinaStrategicandEconomic
    DialoguethatBeijingreduceindustrialcapacity.Americanofficialsneedtokeep
    pressingtheissue,notonlybecauseChinaisfloodingglobalmarketswithsteel,
    aluminumandothergoods,butalsobecauseChinaislivingafantasythatcan
    onlyhurtitsownpeople.
    In2008,Chinabeganpumpingtensofbillionsofdollarsintoitseconomy
    andencouragedbankstoembarkonalendingspreetooffsettheeffectofthe
    financialcrisis.Asaresult,thecountrycontinuedtogrowquickly,evenasother
    countriesslidintorecession.Thegovernmentinterventioncameatahighcostas
    businesses,manyofthemownedbyprovincialandlocalgovernments,borrowed
    excessivelytoinvestinprojectsbasedonunrealisticassumptionsaboutglobal
    demand.
    TheresultisthatChinanowfacesadebtproblemandanovercapacity
    problem.GoldmanSachsestimatesthattheamountofdebtintheChinese
    economyjumpedto235percentofgrossdomesticproductin2015,from130

    percentin2008.Atitscurrenttrajectory,Goldmananalystssaythatnumber
    couldriseto344percentofG.D.P.by2020.
    Thebillsforthatdebtandinvestmentbingearenowcomingdue,including
    humancoststhatmeritacompassionateresponse.Reducingindustrial
    productioncouldforcefivemillionto10millionworkersfromtheirjobs,says
    ScottKennedyoftheCenterforStrategicandInternationalStudiesin
    Washington.Banksandotherinvestorsmayhavetowriteofforrestructuretens
    ofbillionsofdollarsinloansandbonds.
    Tohelpaffectedworkers,Chinaneedsastrongersocialsafetynet
    retrainingpeopleforjobsintheservicesector,providinggenerouspensionsto
    workersclosetoretirementageandrelocatingworkersinhardhitareastocities
    andtownswherejobsaremoreplentiful.Increasedspendingonhealthand
    educationwouldimprovesocialservicesandcreatejobs.Overall,thesepolicies
    shouldmakeiteasierforprovincialandlocalgovernmentstoshutdown
    unprofitableenterprises.
    Onthefinancialside,Chinaneedsamoreeffectiveprocessforcompaniesto
    restructuredebts,mergewithotherbusinessesorliquidatetheirassets.The
    currentbankruptcysystemissoinefficientthatmanysmallerbusinessesthatfail
    simplydisappearwithoutsettlingtheirdebts.Stateownedbankskeepailing
    companies,somegovernmentowned,alivebyrollingovertheirloanssimply
    becausemanagersdonotwanttoacknowledgelosses.
    Therehavebeensignsofprogressinrecentmonths.Somestateowned
    businesseshavedefaultedonbondpayments,suggestingthatthegovernment
    willnotpropupfailingcompaniesinperpetuity,whichisencouraging.Butthe
    defaultshavealsounnervedinvestors,becausetheycannoteasilyturnto
    bankruptcycourtstoswaptheirdebtforequityorrecoupatleastsomeoftheir
    moneythroughnegotiationswithmanagement.
    PresidentXiJinpingsaysheintendstopushforsupplysidestructural
    reformthatwouldreduceexcessindustrialcapacity,cuttaxesandrelax
    governmentcontrolovertheeconomy.Thatechoedapromisehemadein2013to
    givemarketforcesadecisiveroleintheallocationofresources.Sofar,hehas
    notsupportedeithersloganwithmuchsubstance.
    FollowTheNewYorkTimesOpinionsectiononFacebookandTwitter,andsignup

    fortheOpinionTodaynewsletter.
    AversionofthiseditorialappearsinprintonJune9,2016,onpageA22oftheNewYorkeditionwith
    theheadline:ChinasZombieProblem.

    2016TheNewYorkTimesCompany

    You might also like