Times commented| "zombie enterprises" should be both "clean" and "anti-defensive"

China Economic Weekly WeChat: ChinaEconomicWeekly

China Economic Weekly official website: Economic Network www.ceweekly.cn

Ge Feng, special commentator of China Economic Weekly

(This article was published in China Economic Weekly, No. 32, 2017)

The Supreme People's Court recently revealed that the number of newly accepted bankruptcy cases nationwide last year increased by 53.8% compared with 2015. This data reflects from the side that the clean-up and disposal of "zombie enterprises" continue to take substantial steps.

The harm of "zombie enterprises" does not only cause the ineffective occupation and consumption of social resources. In a broader perspective, a series of negative externalities caused by it are even more detrimental to the overall efficiency improvement of the economy, which is mainly reflected in:

First, "zombie companies" have led to distortions in the market-oriented price system. Taking the cost of funds as an example, one of the very "peculiar" phenomena in the process of China's economic operation in recent years is that in the case of interest rate control being basically all liberalized, wide money (as of the end of 2016, the ratio of M2 to GDP in China has been as high as 2.08) and high interest rates have always been parallel (the risk-free yield has always fluctuated in the range of 2.7% to 4.6%, which is in stark contrast with the low interest rate situation in developed countries that are generally as low as 0), and the important cause of this phenomenon lies in a large number of " Zombie enterprises "can ignore debt pressure and "squeeze out" market-oriented enterprises in the financing market.

Second, "zombie enterprises" have led to a worsening problem of overcapacity. This is not only because the "zombie enterprises" can not withdraw from the market, resulting in excess capacity can not be "cleared" under the market mechanism, but also because the "zombie enterprises" as a fact, indicating that there is indeed a certain adverse choice in the economy, some state-owned enterprises do not take profits as the business goal, just expand the scale to "too big to fall", you can get the "privilege" to avoid the punishment of the market mechanism, and this demonstration effect that should not exist is actually encouraging new overcapacity problems.

Third, "zombie enterprises" have begun to jeopardize the safety bottom line of not having systemic financial risks. The logic of this problem can be roughly boiled down to the fact that the reason why China's corporate debt ratio has soared all the way to the point where it must be determined to deleverage is that a large number of "zombie enterprises" that cannot produce normal returns cannot repay the principal and interest through production and operation to create profits, so its "snowball" debt burden changes from quantity to quality (some studies have shown that at present, in the expansion of China's new broad credit, the proportion of principal repayment and interest payments for the main body of the real economy has reached 52%). In fact, it has become an important and even the most important thrust for the extraordinary growth of macro currencies.

This is why the central government has repeatedly asked for the "zombie enterprises" to be explored and cleaned up in a timely manner since 2015. Among them, last year alone, 4977 "zombie enterprises" have actually been cleared out, involving assets of 411.99 billion yuan. It is expected that this work will inevitably move forward with greater efforts in the coming period.

Of course, it is precisely because the harm of "zombie enterprises" is huge, so while constantly increasing the intensity of cleaning up, we must especially be vigilant against the lessons of the past, and we must be sufficiently guarded against potential "zombie enterprises". At present, when the willingness of private investment is still in the stage of bottoming out and rebounding, the task of "stabilizing growth" objectively requires government investment and state-owned enterprise investment to maintain a relatively high growth rate, and it is even more necessary to accelerate the improvement of the market mechanism based on the root causes. The focus is: on the one hand, to expand market access, reduce administrative intervention, and guide private investment to enter more fields through various channels; on the other hand, strengthen the competition mechanism, tighten budget constraints, and force governments and state-owned enterprises to invest more efficiently and be more modest.