By CGTN’s Shi Haizhen

Of the economic pitfalls that China has to face, overcapacity may be the biggest of them all. One solution to deal with overcapacity is to wipe out zombie companies, which should go bankrupt but still survive with the help of banks or local governments, leading to inefficiencies. ‍

But letting them fail also has its ill effects, like mass unemployment and the possible collapse of banks.

CGTN correspondent Tian Wei, in a Two Sessions special series "In My Opinion," sat down for an exclusive interview with CPPCC member He Fan, professor of economics at the HSBC Business School at Peking University, who shared his views on the downside of zombie companies. 

He said that around 15 to 20 percent of listed firms may be zombie companies and it could be a problem for some regions in China. 

“I'm not concerned about the general unemployment rate in China. But it's a structural problem. Nationally speaking, it is fine. But in some areas, for example, in some towns in northeast China, in Shanxi area, the whole town is one factory, one coal mine, and for 3 generations, they have all been working for the same factory, and that's a problem. So we have to design some policies that can precisely target those people,” said He.   

The other thing that is important in dealing with zombie companies is what to do with the banks. Zombie companies exist because banks still give them money, for one reason or another. So if these companies collapsed, the banks could go with them.

“The reason why we are now talking about reform of financial regulation system is to deal with these potential financial risks,” He said.