China urged to cut off zombie firms, roll out reforms as auditor flags misused funds

Report by China’s National Audit Office finds a wide range of problems in areas including social security benefits, credit allocation and local debt management

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China’s National Audit Office identified problems with the allocation of social security benefits. Photo: AFP

Published: 8:30pm, 25 Jun 2024

China’s National Audit Office on Tuesday called for a new round of fiscal and tax reforms, better debt management and also the end of credit supply to so-called zombie companies after it found funds had been misused during its annual check of government spending.

“Based on audits, some of the issues in economic and social development stem from incomplete and inadequate institutional mechanisms, as well as a lack of financial and legal awareness in certain regions ,” auditor general Hou Kai said in his report to China’s top legislature.

“Also, they are owing to inadequate implementation of reform and development measures.”

The suggestions came ahead of next month’s third plenum, which is expected to chart China’s growth path and also solve stubborn issues from a debt crisis to financial speculation, an ongoing property slump, industrial overcapacity, external challenges and weak domestic demand.

The audit annual report, which is widely used to assess government operations and enforcement of local implementation of central government policies, often reveals embezzlement or misuse of funds by ministries or subsidiaries.

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The latest report found a wide range of problems in areas including employment benefits, credit allocation and local debt management.