China sets up new arm to deal with bad loans

A Chinese court has set up a bankruptcy division to deal with “zombie” companies as their numbers rose sharply in recent months following China’s economic slowdown which resulted in overcapacity especially in coal and steel sectors.

‘Zombie’ companies are economically unviable businesses, usually in industries with severe overcapacity, kept alive only with support from the government and banks.

The division of the Higher People’s Court in Guangdong province will focus on bankruptcy and compulsory liquidation cases, offering guidance to other courts in the province and exploring ways to regroup or close down “zombie companies”, state-run Xinhua news agency reported.

At the end of 2015, China’s Central Economic Work conference emphasised the importance of supply-side reform and the clearance of “zombie companies” as a way to cut overcapacity.

Tan Ling, deputy head of the court, said the new division enables better implementation of the Bankruptcy Law and the appropriate treatment of different cases.