CHINA TOPIX

11/02/2024 01:28:45 pm

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China's Zombie Factories Stunt Economic Growth: Experts

A "zombie" factory in China

(Photo : Getty Images) One of the many zombie factories in China where machines and equipment sit idle.

China is not just dealing with plunging stocks, plummeting currency value and economic slowdown, but it has zombie troubles too. There are several zombie companies in China - state firms that cannot survive on their own and need the support of the government.

Unfortunately, these companies are dragging the world's second-biggest economy's progress. When these firms fail to pay debts, it could cause losses for banks, which will in turm have a hard time lending capital to solid investors. Expert ssay if the government continues to pump resources to support zombie establishments, it could weaken the country's economy.

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This matter, according to Institute of International Finance chief economist Charles Collyns is a very serious dilemma. "The Chinese so far have been very reluctant to let market mechanisms work their way," he said.

Finance ministers and bakers from G20 economies gathered for a meeting in Shanghai last week and the focal point of discussion was China's economy. The head of the central bank of China Zhou Xiaochuan stressed that China's need to monitor its debt loads. He pointed out that even if the country's economy is running at a moderate-to-high pace, the debt accumulation is pretty fast.

McKinsey Global Institute reports that by mid-2015, Chinese establishments, except financial institutions, had lumped a debt of $14.5 trillion, which is fourfold higher than eight years ago. The debt is equivalent 131 percent of China's GDP, which is 76 percent higher than in mid-2007. The figure is so big that it is almost twice the corporate debts' share of the US' GDP.

China's overall debt under President Xi administration - including funds borrowed by corporations, financial firms, government and households - skyrocketed from $6.6 trillion to $31.9 trillion in mid-2007 and mid-2015, respectively. The figure is equivalent to 290 percent of the country's GDP, and of note, McKinsey stressed this is way too much for a still-developing nation.

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