China’s Guangdong Establishes Tribunal to Address Zombie Firms: Reports by Reuters

SHANGHAI (Reuters) – Guangdong province in China has established a specialized court to handle disputes arising from the closure of "zombie enterprises," as reported by state media.

The Guangdong High People’s Court announced the creation of this new tribunal to address legal issues related to the liquidation of approximately 3,385 zombie firms in the province. According to local court officials, a significant increase in bankruptcies is anticipated in the coming years.

Zombie enterprises are defined as economically unviable businesses that continue to operate solely with the assistance of local governments and financial institutions. The Chinese government is committed to implementing stricter environmental, efficiency, quality, and safety standards to eliminate these firms from the market.

Nevertheless, shortcomings in the nation’s bankruptcy laws have complicated the exit process for struggling companies, while local governments remain concerned about the potential rise in unemployment.

Guangdong has set a goal to close 2,333 zombie enterprises by the end of this year. Additionally, the local state asset regulator intends to focus on restructuring or merging failing firms over the next two to three years.

A recent analysis conducted by Renmin University indicated that 51.4 percent of listed steel companies and 44.5 percent of real estate firms could be classified as zombie enterprises due to their technical insolvency—that is, their inability to generate sufficient revenue to cover their debts. The study revealed that 7.5 percent of all listed firms in China fit this definition.

Furthermore, the central government is currently developing comprehensive new guidelines for the disposal of zombie enterprises, according to state media reports.