After years of propping up lossmaking state companies with fiscal subsidies and cheap credit, one Chinese province has embraced privatisation to cast off its burden, setting a precedent for dealing with thousands of “zombie enterprises”.
Dongbei Special Steel, based in the north-east rust-belt province of Liaoning, is a high-profile example of the excessive debt and poor profitability that has plagued thousands of lossmaking state groups. These “zombies”, which survive because of state support are a key challenge for the Communist party’s newly selected top leadership.
The steel group has defaulted 10 times since last year on Rmb7bn ($1.1bn) worth of bonds held by more than 100 creditors. The company entered formal bankruptcy last October, and the chairman’s recent suicide has added a morbid air to the proceedings.