BEIJING, July 8 China should let more ailing
firms go bankrupt to help improve economic mechanisms rather
than allow them to get government-led bailouts, a deputy central
bank governor said on Tuesday.
The risk of corporate failures is rising as economic growth
slows and the government tries to put a lid on high debt levels
in the economy to help ward off financial risks.
"In the course of our surveys, we found that many companies
are in the zombie state but they have taken up a large amount of
credit," Liu Shiyu told a forum in Beijing.
He urged companies in the coal, steel, machinery and
shipbuilding sectors to find ways out of business difficulties,
including using a bankruptcy law introduced in 2007.
Local government officials generally mediate between
creditors behind closed doors and Beijing has used the law
cautiously, fearing the failure of large firms and widespread
layoffs could lead to social unrest.
The number of bankruptcies handled by Chinese courts fell
to 1,920 last year from 10,000 a few years ago, Liu added.
"When some large companies run into difficulties, creditors
and companies are counting on the government to take the lead in
administrative settlements," Liu said, warning that
government-led bailouts could lead to the "misuse of resources".
In a report issued last month, the central bank blamed some
low-efficiency industries and companies for "crowding out"
funding for small firms and pledged to improve liquidity and
Average non-performing loan ratios at Chinese commercial
banks hit a three-year high of 1.04 percent in the first
quarter. Given the opacity of the banking system, many analysts
believe real levels are much higher.
(Reporting by Kevin Yao; Editing by Alan Raybould)