CSRC on a mission to delist 'zombie enterprises'

Chinese regulators say 25 companies have been delisted in the past 2 years; they are keen to axe firms that are no longer a going concern, and have vowed to support listed firms to clear bad loans

CSRC on a mission to delist 'zombie enterprises'
A 'zombie company' is one that needs bailouts in order to operate, or an indebted company that is able to repay the interest on its debts but not the principal. The pandemic is suspected to have created a vast number of zombie companies all over the world. File image by AFP.

(ATF) China intends to streamline its delisting criteria to eliminate “zombie companies” from the market, a senior regulatory official said on Thursday.

Sun Nianrui, deputy director of listed companies supervision at the China Securities Regulatory Commission (CSRC), said the delisting system has been improved since 2019, and a total of 25 companies had been forced to delist in the past two years. 

He said that meant more companies had been delisted since 2019 than in the previous 13 years.

A 'zombie company' is one that needs bailouts in order to operate, or an indebted company that is able to repay the interest on its debts but not the principal. The economic impact of coronavirus pandemic is suspected to have created a vast number of zombie companies not only in China, but all over the world.

Sun said the next step would be to select more relevant delisting criteria and no longer simply examine a company’s profitability.

Speaking at a forum in Haikou, Sun said the CSRC regarded improving the delisting system as an important part of deepening the reform of China’s capital markets, and would focus on companies’ ability to continue as a going concern. 

The CSRC would support listed companies to clear non-performing assets through active delisting, mergers and acquisitions, bankruptcy reorganisations and other means, Sun said, adding that the survival of only the fittest for the market was essential.

Tougher stance

CSRC has launched investigations of several companies since the beginning of this year, according to chinanews.com.

It cited drugmaker Kangmei Pharmaceutical, which was fined 600,000 yuan for inflating revenues; fisheries company Zhangzidao, fined a similar amount for filing false financial statements; and Kangdexin, a composite materials maker fined for overstating sales, as examples of CSRC's harder stance. 

“CSRC will implement zero tolerance and severely crack down on violations of laws and regulations,” Sun said at the forum.

He said the commission would cooperate with other agencies to strengthen enforcement and prosecution and improve civil litigation and compensation systems over violations of securities regulations.

Sun said that the Commission would soon launch a corporate governance initiative, advocating best practices and instilling long-term mechanisms for listed companies.

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China economy zombie companies regulators CSRC delisting system Zero tolerance