Chinese court sets up special unit for bankrupt 'zombie' firms

A Chinese court has set up a bankruptcy division to deal with "zombie" companies as their numbers rose sharply in recent months following China's economic slowdown which resulted in overcapacity especially in coal and steel sectors.

'Zombie' companies are economically unviable businesses, usually in industries with severe overcapacity, kept alive only with support from the government and banks.

The division of the Higher People's Court in Guangdong province will focus on bankruptcy and compulsory liquidation cases, offering guidance to other courts in the province and exploring ways to regroup or close down "zombie companies", state-run Xinhua news agency reported.

At the end of 2015, China's Central Economic Work Conference emphasised the importance of supply-side reform and the clearance of "zombie companies" as a way to cut overcapacity.

Tan Ling, deputy head of the court, said the new division enables better implementation of the Bankruptcy Law and appropriate treatment of different cases.

Guangdong has set a target of closing or regrouping of all its zombie companies within three years.

Li Cheng, director of Guangdong state-owned assets supervision and administration commission, said a total of 3,385 companies in the province were identified as "zombies", 2,333 of which are marked for closure.