China’s market regulator has selected Beijing and six provinces to test a court process through which company-registration authorities can seek liquidation of firms that neglect winding-up duties, potentially clearing inactive businesses from official records.
The State Administration for Market Regulation (SAMR) announced the pilot April 27. It covers Beijing, Hebei, Jiangsu, Zhejiang, Henan, Sichuan and Guangdong. The announcement did not set a target number of companies or a date for nationwide expansion.
The revised Company Law made government departments and company-registration authorities eligible to ask a court to appoint a liquidation team in certain cases. Shareholders, creditors and other interested parties already had that option, SAMR said.
The pilot will establish ways to screen companies, set application procedures and divide responsibilities between administrative agencies and courts. It also calls for agencies and courts to share data and provide online services for liquidation and deregistration.
The regulator’s use of “zombie” firms refers to companies with abnormal business status that have neglected liquidation. That differs from the economic definition used in a 2017 International Monetary Fund (IMF) working paper, which identifies firms with persistent losses and estimated borrowing costs below market rates, a possible sign of support from lenders or government.
The IMF paper linked such firms to weaker productivity and less investment by healthier businesses. It estimated that better allocation of resources could raise China’s long-term annual growth by 0.7 to 1.2 percentage points. That was a conditional research estimate, not a forecast for the pilot.
A 2017 study of Shanghai and Shenzhen listed companies from 2009 to 2016 found that firms providing more jobs were more likely to receive government subsidies. The finding points to a tension between preserving employment and shifting resources toward more productive businesses, but does not establish how officials will act under this trial.
The South China Morning Post quoted Alicia Garcia-Herrero, Natixis’ chief economist for Asia-Pacific, as expecting the pilot to be “moderately effective” at clearing smaller dormant private firms in the pilot areas.
China’s 2018 interagency notice called on local governments to identify zombie and overcapacity firms, with handling expected in principle to finish by the end of 2020. It barred fiscal subsidies to keep zombie firms operating, called for stricter conditions on loan extensions and refinancing, and said workers, creditors, shareholders and investors should be protected during debt resolution.
A separate central state-owned enterprise cleanup had reached its core tasks by the end of 2019, when 2,041 subsidiaries were profitable, the IMF said in its 2026 report. That does not establish whether the broader 2018 effort reached all targeted firms. SAMR has not announced when the seven-region pilot will be reviewed.
