(Yicai Global) Aug. 3 -- Corporate bankruptcy cases have burgeoned in China, but by declaring zombie enterprises bankrupt, the government can eradicate debt chains revolving around these businesses, and therefore eliminate systemic financial risks at source, an official with China's supreme court advised.

A zombie company is an economic notion economist Edward. J. Kane first propounded. It refers to indebted loss-making businesses that have stopped, or partially stopped, operations, and which rely on government or bank bailouts for continued existence. 

In China, most zombie companies are large state-owned enterprises with hordes of employees. They are vital to local economies. Local governments are reluctant to push them into bankruptcy out of considerations of social stability, but they are hopelessly destitute and can survive only with constant life support from banks and the government. 

The number of bankruptcy cases in the country has remained small at around 2,000 to 3,000 each year during the last decade or so, supreme court statistics show. Last year, however, the figure soared by 54 percent to over 5,600. In the first half of this year, Chinese courts accepted a total of more than 4,700 bankruptcy filings, up 65 percent compared with the same period last year.

Most bankrupt enterprises are heavily indebted and hardly operational, said He Xiaorong, presiding judge of the number two civil tribunal at the supreme court. Some cases even involve interlinked or mutual guarantees, he added. Zombie enterprises must be eliminated, otherwise they will likely lead to industry-wide and regional financial crises. To institute bankruptcy proceedings against these businesses as early as possible is imperative to stamp out debt chains once and for all, and prevent risks in a given area or market from spilling over into other regions or businesses, thereby holding systemic risks in check.