Author: Fran Wang
Posted on: Caixin Global, March 1st, 2017
Chinese President Xi Jinping vowed to speed up reforms this year, delivering comments interpreted in the country’s top official newspaper as signaling Beijing will move aggressively to shut “zombie” companies and discourage risky borrowing by property developers.
At a gathering of high-ranking economic and financial policy makers Tuesday, Xi offered more detailed and specific directives than Chinese leaders have said previously on how layoffs would be handled following the shuttering of failing companies. Dubbed “zombie enterprises,” these companies have long stopped or suspended production, but have been kept in business by government subsidies or bank loans because they are often major employers.
Xi’s comments were interpreted as meaning Beijing will decisively press ahead to shut down zombie enterprises despite concern about social unrest. In the past, such concerns have delayed government action, said a commentary piece posted after the meeting on an official social media account of the People’s Daily’s overseas edition.
“It means (the government) is determined to get rid of zombie companies and will not be held back any more by talk that social stability will be undermined by the waves of job cuts the shutdowns will lead to,” wrote Huo Mutong in the commentary piece.
The gathering was seen as a harbinger of policy priorities to be unveiled during the annual session of the National People’s Congress, China’s top legislature, which opens Sunday.
Authorities must deal with zombie companies in a “resolute manner,” offer laid-off workers new posts or vocational training opportunities, and ensure those who are unable to find a job are covered by the social safety net or other aids, Xi said at the meeting of the Central Leading Group on Finance and Economic Affairs, according to the official Xinhua News Agency.
Leaders addressed the same issue in December at the Central Economic Work Conference, a key annual meeting at which Chinese leaders chart the course for the world’s second-largest economy for the following year. But remarks released in an official statement summarizing discussions at the conference remained rather general: “There should be proper arrangements for (laid-off) workers.”
Another focus of Tuesday’s meeting was China’s property sector, which bolstered economic growth in 2016 but is expected to lose momentum this year.
In September, the government began imposing a series of tightening policies in the real estate market, such as raising down-payment requirements and interest rates on mortgages, in a bid to contain demand and rein in surging house prices.
Xi said this year authorities would continue to crack down on speculation and “guide investment activities and reasonable anticipation” as part of efforts to strike a “dynamic balance” in the property market.
The comments suggested that the target of curbs this year may shift from home buyers to property developers, likely by limiting lending to the companies while lowering their expectations on returns on investment to discourage reckless borrowing, said the People’s Daily commentary.
Xi also called for the establishment of a mechanism to coordinate financial regulation to prevent and fend off systemic risks, while pledging to maintain “firm clampdown on illegal acts” in the industry, according to Xinhua.
Leaders at December’s Central Economic Work Conference already listed warding off financial risks as a top priority this year, in the face of the country’s skyrocketing debt levels.
China in recent years has depended heavily on debt-fueled infrastructure projects — often backed by the government — and an overheated property market to stimulate growth, with total borrowing in the country estimated by the China Academy of Social Sciences, a government think tank, to be worth 249% of GDP in 2015.