China has released a new policy that aims to accelerate the disposal of bad loans to businesses by getting rid of “zombie enterprises” and facilitating the transfer of bad loans in general to asset management companies (AMCs). The document requires zombie enterprises – heavily indebted companies that have no meaningful operations and are kept afloat through local government protection – to go bankrupt quickly and have their assets liquidated. Banks were told to write off loans to those bankrupt borrowers, including loans made through bonds, according to a source close to the government agencies that issued the policy. “This requirement sounds like an emergency,” the source told Caixin. “The policymakers will not tolerate half-dead enterprises dragging on.”
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