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China cuts down on subsidies to zombie companies as US trade war hits economy

As part of its goal to make the economy more efficient, China unveiled a new reform plan this week to make it easier for companies, including zombie state-owned enterprises, to be closed down.

It intends to better allocate resources to unleash the economy’s growth potential, which is under pressure from the trade war with the US, by lowering the cost of closing down insolvent firms.

The government “must fully employ the decisive role of the market in resource allocation, standardise market competition, reduce market distortions … and promote the flow of components and resources to the most efficient market entities,” the joint circular from 13 major ministries said. The plan specifically forbids central government agencies and local governments from providing subsidies or loans to prop up the operation of state-owned firms that would not be financially viable without such help, which are known as zombie enterprises.

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