Chinese bankruptcies to rise sharply this year with more ‘zombie’ firms allowed to die, Fitch says
The official number of Chinese insolvency cases soared 54pc to 5,665 in 2016, from 3,684 in 2015, and is on track for another significant increase this year
Chinese bankruptcies are predicted to continue rising sharply, as tighter financial regulations take effect and the authorities become more willing to sound the death knell of “zombie” state-owned enterprises, according to Fitch Ratings.
“In light of rising policy attention and the tightening of credit conditions since late 2016, bankruptcies are likely to continue rising over the next few years,” said Andrew Fennel, the agency’s director of sovereign ratings.
The Chinese authorities have become more accepting of bankruptcies in recent years, including in the state sector, and have made efforts to improve the insolvency framework
The recent deceleration in credit growth also suggests Chinese firms will face slower progress next year, as economic growth is expected to decrease to 6.3 per cent, compared with 2017’s estimated 6.7 per cent rate, he added.
The official number of Chinese insolvency cases soared 54 per cent to 5,665 in 2016, from 3,684 in 2015, and is on track for another significant increase this year, according to data from China’s Supreme People’s Court. In the first seven months of this year, 4,700 bankruptcies have been filed.
Cases resolved also increased 43 per cent to 3,602 in 2016 from 2015. In the January-to-July period, the number reached 1,923.
“The increase in insolvencies is partly policy-driven,” said Fennel. “The Chinese authorities have become more accepting of bankruptcies in recent years, including in the state sector, and have made efforts to improve the insolvency framework.”
