China will have to go bankrupt to survive!

The severe damage that China is currently suffering is not necessarily what it may appear to be. It’s actually these “zombie” companies that are degrading the economic fabric of the nation; they are the failing businesses that the Chinese government is nevertheless keeping alive on artificial respirators. The easy money and low prices which have been inundating the system basically favour all sorts of inconsequential ventures, the most cost-effective management, and deficient distribution of resources. Despite this, these companies are still in business right now. Worse still is that they continue to use up resources to produce goods and merchandise at more or less considerable losses. The State and its banks have not stopped making cash injections, or – at the least – reallocating or restructuring loans in order to protect employment and the utility of the work being done.

It is therefore in actively promoting the substandard management of national enterprises that China is purchasing its social order, which is its top priority – or is it an obsession? This type of support is practised at all levels since the factories that are completely adrift in every province of the country are being kept afloat with the sole aim of replenishing local economies. The Chinese powers that be could take a look at their neighbour, Japan, as an example. Japan spent twenty years crossing the desert of failing-business-maintenance. The (double) “lost decade” of Japan, during which the economy stagnated, effectively came about because of this State support of moribund businesses. By following the path of the Japan of the 1990s, China is promoting the infection of its whole system with its own “zombie” companies and is sapping the life out of its growth prospects. Paralysed by mass unemployment and the social unrest which would inevitably be the upshot of this, the Communist Party is actively participating in the decay of its economic fabric – and by doing so is shooting itself in the foot – by protecting numerous businesses, that have now become parasitic, against bankruptcy.

China is thus trying to implement the capitalist system, which demands, in contrast to its current practices, that a poorly run business be disposed of. Bankruptcy is in fact the most effective sanction against errors and blunders in the echelons of management; this is how the system cleans itself of management faults, and it is to this day the only method of restoring the ruins of a failing business. China is thus attempting to ignore this fundamental rule: letting a company that is making losses die in order to redistribute more productively the resources that it had previously been monopolising. It is therefore crucial for the future of the economy and the rate of employment that China takes drastic action, and that its debts are removed from production facilities such as factories. Bankruptcy is effectively capitalism’s greatest invention when it comes to restructuring or indeed wiping debts clean, all the while protecting the assets which can then be suitably redistributed.

Before providing funding and before manipulating its currency, China must urgently pass bills on corporate bankruptcy that would have to come into immediate force against companies held by the State as well as those that are privately owned. This way, bankruptcy smooths over past mistakes and reallocates the inherent assets of any business that happens to go under, which would be to the benefit of all involved. Losses do not affect just the company that suffers them, but also harm the economic fabric of the country and end up impoverishing society. A veritable “right to be forgotten”, bankruptcy is the essential cornerstone of the capitalist system.