China Ends Support for Insolvent Companies
Friday May 13, 12:55 am ET
China to End Support for Failing State-Owned Companies; Funding Will Be Confined to Larger Industries
SHANGHAI, China (AP) -- China will stop bailing out many failing state-owned companies, instead requiring them to apply for bankruptcy as the country moves toward a more market-driven economy, state media reported Friday.
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Government support will be confined mainly to larger industries, especially in China's northeastern rust belt and backward inland areasfunding, the official Xinhua News Agency reported.
Small or medium-sized companies and non-industrial enterprises must file for bankruptcy if they are insolvent, Shao Ning, vice minister of the government agency that oversees state-owned assets, told a conference in Beijing on Thursday, Xinhua said.
"Only some large badly performing state-owned industrial enterprises will get support from the government in the next four years, while other state-owned enterprises will have to apply for bankruptcy according to law," it said.
The government has been threatening for years to withdraw support for financially defunct companies, and thousands have already closed, leaving millions of workers unemployed.
However, numerous others have been kept afloat with loans from state-owned banks that are now being urged to step up risk controls and stop subsidizing bankrupt firms.
Large state firms that are chronic loss-makers, that have more debt than assets, and that have no hope of being turned-around would face bankruptcy. State companies with good products and strong management but heavy debts will be told to work out debt restructuring plans with banks, Shao said.
Between 1994 and 2004, Shao said 3,484 state companies went bankrupt, with 237 billion yuan ($28.7 billion) in loans written off by banks. The government made arrangements for 6.7 million workers affected, it said without elaborating.
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