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China to encourage some "zombie" firms to restructure

Shanghai

CHINA will encourage "zombie" firms that still retain "business value" to restructure and woo strategic investors to cut debt to reasonable levels, the state planner said on Tuesday.

As part of its efforts to curb soaring corporate debt and tackle price-sapping capacity gluts in sectors such as steel and coal, China has promised to improve bankruptcy procedures and allow vast numbers of loss-making "zombie" companies to close.

But Beijing has also sought to ensure a smooth exit for hundreds of insolvent enterprises in a bid to avoid unemployment and political instability in struggling industrial regions.

"It is necessary to carry out these tasks in an orderly manner, effectively prevent moral hazards such as debt defaults and the loss of state assets, and ensure social stability," the National Development and Reform Commission said in new guidelines published on its website. REUTERS

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