'Zombie companies' adjust to new reality

(CHINADAILY)Asoverproducingandunprofitablebusinessesintheshipbuilding,mining,steelandcementindustriesareforcedtocloseordownsize,employeescometotermswiththechangeandlooktowardthefuture.XinhuaNewsAgencyandDuJuanreport.

Afteracareerspentbuildingandrepairingships,BaoHongyi(apseudonym)neverexpectedtheshippingindustrytosinksofast.

Amonthago,theState-ownedWuzhouShipyard,where48-year-oldBaobeganworkasatechnicianin2001,filedforbankruptcy.

"IusedtothinkthatdaywouldnevercometoaState-ownedcompany,"saidBaoashesadlysurveyedtheshipyardonWukuishanIsland,inZhoushancitywithinEastChina'sZhejiangprovince.

WuzhouShipyardisoneofthescoresofso-called"zombiecompanies"thatareeconomicallyinviableandwhichChinahasdecidedtophaseout.

PullingtheplugonsuchenterprisesbecameaprioritywhenPremierLiKeqiangdeliveredthegovernmentworkreportonMarch5andexplainedwhyitisnolongerinChina'sintereststosubsidizepoorperformers.

Zombiecompaniesareeconomicallyinviablebusinesses,ofteninindustriesthathavesevereovercapacity,andhavebeenkeptalivelongaftertheyshouldhavediedthankstomoneypouredinbygovernmentsandbanks.

Localauthoritiesandfinancialinstitutionstypicallyproppedupsuchindustriestoprotectlocaleconomiesandjobs.

InadditiontotheshipbuildingsectorwhereBaoworked,otherindustriesundergoingmassivechangeincludesteel,coalandcement,wheretherehavebeenheavyfinanciallossesinrecentyearsbecauseofhugeovercapacity.

China'sproducerpriceindex,aweightedlistingofpricesmeasuredatthewholesaleorproducerlevel,fellfor47months,largelybecauseoftheunsustainablesituation.

BaosaidthingsatWuzhouShipyardstartedtogosourduringtheglobalfinancialcrisisof2008.

"Atitspeak,inaround2007,thereweresomany－morethan3,000－employeesworkingherethattherewerenotenoughdormitoriestohousethemall,"recalledBao.

Butshipbuildingstarteditsdownwardspiralwhenshippingratesfellduringtheglobalrecession.A64,000-metric-tonbulkcarrierthatwouldhaveoncesoldfor320millionyuan($48million)nowhasapricetagof120millionyuan.