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China central bank adviser calls for zombie company clean-up fund

Beijing may currently favour megamergers when it comes to reform of state-owned enterprises, but at least one central bank adviser is suggesting a different approach to dealing with China’s lossmaking zombie companies.

In a column published in the Communist party mouthpiece People’s Daily on Thursday, Huang Yiping, a member of the People’s Bank of China monetary policy committee, recommended the creation of a government fund to aid employees who lose their jobs when zombie companies are shuttered.

“Placement of employees is a major and difficult point in dealing with zombie companies,” he writes. “The government should take care of finding work for employees so they can change tracks [from the public to private sector], ensuring they have a path forward for employment and safeguarding their livelihoods.”

Mr Huang, a professor at University’s National School of Development and a critic of the favoured status of state sector, suggests China’s central and local governments can cooperate on working out the exact details of a fund for taking care of such placement. But he stressed that the underlying principle should be “protecting people, not companies, while at the same time strictly controlling financial risk.”

The call for a new tool to aid in culling zombie companies, coming in the pages of the party’s flagship paper, comes as hopes for a more serious overhaul of China’s state sector are on the wane.

Beijing has in recent years favoured megamergers of state-owned colossi as one means of shoring up the party’s control over them, rather than subjecting the companies to more competition, privatisation or even liquidation in order to improve efficiency and rein in losses. How to deal with the unemployment entailed by shuttering the worst offenders has long been a sticking point for policymakers.

The scuffle between these two opposing approaches has played out in the pages of party publications, with market forces typically given short shrift of late. Last month an article penned by Xiao Yaqing, head of the commission charged with responsibility for SOEs, appeared to underscore the victory of party power over market forces.

“We must resolutely resist ‘privatisation’, ‘de-state-ification,’ ‘de-main guidance-ication’,” he wrote in the pages of the Central Party School publication Study Times.

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