Study On The Exit Path Of Zombie Enterprises In China’s Steel Industry

The main direction of China’s economic development strategy since 2015 is to carry out supply-side structural reforms,of which the main task is to reduce production capacity by cleaning up zombie enterprises.In recent years,China’s problems with zombie enterprises have become increasingly serious.The existence of zombie enterprises creates overcapacity problems which hinders the expansion of capacity reduction,as well as occupies various resources,thus affecting the development of other enterprises and market economy.In May 2017,General Secretary Xi again emphasized that it is necessary to deal with the zombie enterprises and solve the problem of overcapacity before the transformation of the economic structure can be completed.Accelerating the withdrawal of zombie companies from the market,reducing the market resources occupied by zombie companies,and reducing production capacity issues are essential to China’s economic and social development.Particularly,the problem of overcapacity in China’s steel industry,a frequent occurrence area of zombie enterprises,is serious.This article selects the steel industry as the research object and takes Chongqing Iron & Steel Company as an example to analyze the exit paths of zombie enterprises in China’s steel industry.This article begins with a review of domestic and international research on the concept,causes,identification methods,and exit methods of zombie companies.The concept and classification of the exit path of zombie enterprises is divided into two types,including exit paths for continuing operations and exit paths for terminating operations.The exit paths for continuing operations mainly include mergers and acquisitions,custodial operations,bankruptcy reorganization and bankruptcy reconciliation.The path for terminating operations mainly includes bankruptcy liquidation and dissolution liquidation.Additionally,this article also introduces operating value theory,principal-agent theory,budget soft constraint theory and reorganization synergy theory,and stakeholder theory.Based on these four theories,Chongqing Iron and Steel is used as a case to explore the exit path selection of enterprises.The case analyzes begins with introducing the process of Chongqing Iron and Steel becoming a zombie enterprise,and Chongqing Iron & Steel’s cooperation with other enterprises and its major asset restructuring,which ultimately failed to save the company due to the complex situation of Chongqing Iron & Steel’s debt situation and policy requirements.According to the operating value theory,Chongqing Iron and Steel’s reorganization value is greater than the liquidation value.Therefore,on the verge of bankruptcy,the company chose the bankruptcy and reorganization method,after which the company successfully broke down.The article introduces the process of Chongqing Iron and Steel Bankruptcy and Reorganization.The case analyzes begins with introducing the process of Chongqing Iron and Steel becoming a zombie enterprise,and Chongqing Iron & Steel’s cooperation with other enterprises and its major asset restructuring,which ultimately failed to save the company due to the complex situation of Chongqing Iron & Steel’s debt situation and policy requirements.According to the operating value theory,Chongqing Iron and Steel’s reorganization value is greater than the liquidation value.Therefore,on the verge of bankruptcy,the company chose the bankruptcy and reorganization method,after which the company successfully broke down.The article introduces the process of Chongqing Iron & Steel’s Bankruptcy and Reorganization.The reorganization plan contains four aspects of the investor’s equity adjustment plan,debt classification and adjustment plan,debt compensation plan,and operating plan.The article also analyzes the effects of Chongqing Iron & Steel’s restructuring from the financial indicators of debt repayment ability,operating ability,profitability,and growth ability-the four aspects of the enterprise have been improved after reorganization.The reasons for the successful reorganization of Chongqing Iron and Steel Bankruptcy are studied,such as the introduction of industrial structure funds during reorganization,the emphasis on the business plan after reorganization,the protection of the rights and interests of relevant stakeholders,and the introduction of a new management team.The article summarizes the experience through the successful case of bankruptcy and reorganization of Chongqing Iron and Steel,and provides a reference for other zombie enterprises in the steel industry to withdraw from the choice.When other zombie enterprises in the steel industry choose the exit path,they should choose the exit plan according to their own characteristics and actual conditions.Those who do not meet the direction of industrial structure adjustment should directly choose the method of terminating operations.The financial status and operating status of the company should be considered when choosing from custodian operations,mergers and acquisitions,or bankruptcy reorganization.Reorganization is an effective exit method for zombies that the steel industry is stuck in due to financial difficulties such as inability to repay debts and still has many advantages and is worth saving.Zombie enterprises should also consider the issue of staff placement when choosing an exit method,which is conducive to maintaining social stability.Because the government and banks have played an important role in the zombie enterprise exit process,zombie enterprises should also consider the influence of the government and banks when choosing to exit.The government and banks should properly,rather than excessively intervene in the exit of zombie enterprises excessive intervention complicates the process to withdraw,resulting in a waste of social resources.