Eleven departments, including the National Development and Reform Commission ("NDRC"), have recently issued the Circular on Further Effectively Handling Debts Owed by "Zombie Enterprises" and Enterprises Undergoing Overcapacity Cut (the "Circular").
The Circular states that, the scope of debts to be settled covers direct debts, debts incurred from loans uniformly obtained by group companies, and guaranteed debts, owed by zombie enterprises and enterprises undergoing overcapacity cut. These debts will be handled differently; specifically, direct debts of zombie enterprises and of enterprises undergoing overcapacity cut will be resolved by category, debts incurred from loans uniformly obtained by groups companies owed by such enterprises will be separated and divided and then counted into the direct debts, while guaranteed debts haunting zombie enterprises and enterprises undergoing overcapacity reduction will be addressed independently through negotiations with relevant right holders. With regard to procedures and the time limit for handling the said debts, the Circular expressly states that, the first group of enterprises whose debts will be resolved shall be prepared within three months after the issuance of this Circular. And subsequent lists of enterprises whose debts will be dealt with shall be worked out in a reasonable manner, and in principle, all debts shall be successfully resolved by the end of 2020. Moreover, the Circular sets out arrangements for the improvement to policies and to the institutional environment, adding that actions will be taken to support the disposal of assets to liquidize existing assets, put in place and optimize financial credit-loan policies, and carry out and improve policies on social security, taxation and fiscal affairs.