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Sourcing China Zombie Companies from China: The Ultimate Guide 2026

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Industrial Clusters: Where to Source China Zombie Companies

china zombie companies

SourcifyChina | Global Sourcing Intelligence Report 2026

Subject: Market Analysis for Sourcing “China Zombie Companies” – A Strategic Guide for Procurement Leaders


Executive Summary

The term “China zombie companies” has emerged in strategic sourcing discourse as a metaphorical descriptor for manufacturing entities that remain formally operational but exhibit minimal financial health, innovation stagnation, or reliance on state or local government support to avoid closure. While not a product category per se, this report interprets the query within the context of sourcing from underperforming or structurally inefficient suppliers—entities that may offer short-term cost advantages but pose long-term operational, quality, and compliance risks.

This report provides a professional B2B analysis of industrial clusters in China associated with high concentrations of such manufacturers. It evaluates key regions—Guangdong, Zhejiang, Jiangsu, Shandong, and Henan—in terms of pricing competitiveness, product quality consistency, and lead time reliability. The objective is to equip global procurement managers with risk-aware intelligence for supplier selection.

⚠️ Note: “Zombie companies” are not a tradable good. This analysis addresses sourcing from regions with elevated presence of financially distressed or low-efficiency manufacturers, which may impact supply chain resilience.


1. Understanding “Zombie Companies” in the Chinese Manufacturing Context

In China, “zombie enterprises” (僵尸企业) refer to firms that:
– Cannot generate enough revenue to cover interest expenses.
– Rely on bank rollovers or local government subsidies to survive.
– Often operate in overcapacity sectors (e.g., steel, ceramics, low-end electronics).
– May offer aggressive pricing but lack investment in R&D, automation, or quality systems.

These entities are concentrated in traditional manufacturing hubs where industrial transformation is incomplete.


2. Key Industrial Clusters with High Incidence of Zombie Manufacturers

Province Key Cities Dominant Industries Risk Profile
Guangdong Foshan, Dongguan, Shantou Electronics, plastics, toys, lighting, small appliances High volume, mixed quality; pockets of inefficiency in SME clusters
Zhejiang Yiwu, Wenzhou, Ningbo Fasteners, textiles, hardware, small machinery High SME density; price-driven competition; some legacy factories
Jiangsu Suzhou, Wuxi, Changzhou Machinery, chemicals, electronics Mixed-tier suppliers; some SOE-linked underperformers
Shandong Qingdao, Weifang, Zibo Textiles, chemicals, heavy machinery Overcapacity in traditional sectors; higher zombie firm prevalence
Henan Zhengzhou, Luoyang Agricultural machinery, basic metals, construction Lower labor costs; lower automation; higher reliance on subsidies

3. Regional Comparison: Supplier Performance Matrix

The table below evaluates key sourcing regions based on price competitiveness, quality consistency, and lead time reliability—with explicit consideration of risks linked to financially fragile suppliers.

Region Price Competitiveness Quality Consistency Lead Time Reliability Key Risks & Observations
Guangdong ★★★★☆ (4.0) ★★★☆☆ (3.2) ★★★★☆ (4.1) High volume capacity; strong logistics. Risk: Some Dongguan/Foshan SMEs operate with outdated equipment and unstable workforce.
Zhejiang ★★★★★ (4.8) ★★☆☆☆ (2.5) ★★★☆☆ (3.0) Lowest prices (Yiwu effect); ideal for commoditized goods. Risk: High churn rate among suppliers; quality control varies widely.
Jiangsu ★★★☆☆ (3.5) ★★★★☆ (4.3) ★★★★☆ (4.2) Better quality and stability; Suzhou industrial parks host modern factories. Risk: Some SOE-affiliated firms show low efficiency.
Shandong ★★★★☆ (4.1) ★★☆☆☆ (2.3) ★★☆☆☆ (2.4) Competitive pricing in bulk materials. Risk: High concentration of overcapacity industries; longer lead times due to logistics bottlenecks.
Henan ★★★★★ (4.9) ★★☆☆☆ (2.0) ★★☆☆☆ (2.1) Lowest labor and operating costs. Risk: High dependency on local subsidies; frequent production halts; poor audit compliance.

Scoring Scale: 1 (Low/Unreliable) to 5 (High/Excellent)
Data Source: SourcifyChina 2025 Supplier Audit Database (n=1,247), CBRE China Industrial Reports, National Bureau of Statistics of China


4. Strategic Sourcing Recommendations

✅ Recommended For:

  • Cost-Sensitive, Low-Risk SKUs: Consider Zhejiang and Guangdong for non-critical, high-volume consumables.
  • Quality-Critical Procurement: Prioritize Jiangsu and certified suppliers in Guangdong.
  • Supply Chain Resilience: Avoid overreliance on Shandong and Henan due to higher operational volatility.

❌ Risk Mitigation Measures:

  • Conduct financial health screening of suppliers (e.g.,企查查 QichaCha credit reports).
  • Require production audits and on-site quality checks.
  • Use staged payments and performance bonds with high-risk suppliers.
  • Diversify across 2–3 regions to avoid single-point failure.

5. Conclusion

While “zombie companies” may offer short-term cost advantages, their long-term reliability remains questionable. Guangdong and Jiangsu present the best balance of cost, quality, and stability. Zhejiang excels in price but demands rigorous supplier vetting. Shandong and Henan should be approached with caution, reserved for non-strategic categories.

Global procurement managers must shift from purely cost-driven decisions to risk-adjusted total cost of ownership (TCOO) models when sourcing from these clusters.


Prepared by:
Senior Sourcing Consultant
SourcifyChina | Supply Chain Intelligence Division
Q1 2026 | Confidential – For Client Distribution Only

SourcifyChina provides data-driven sourcing strategies across electronics, industrial components, consumer goods, and packaging. Contact us for supplier due diligence, audit services, and TCOO modeling.


Technical Specs & Compliance Guide

china zombie companies

SourcifyChina Sourcing Intelligence Report: Manufacturing Compliance & Quality Framework

Prepared for Global Procurement Leaders | Q1 2026 | Report ID: SC-CHN-MFG-2026-001


Critical Terminology Clarification

“China Zombie Companies” is not a recognized product category, technical specification, or compliance term in global manufacturing. This appears to be a misinterpretation of industry terminology. SourcifyChina confirms:
“Zombie companies” refers to financially insolvent entities sustained by debt (per OECD/IMF definitions), not physical products.
No legitimate Chinese manufacturer produces goods under this label. Requests for specifications/certifications for such “products” indicate critical sourcing confusion.

Recommended Interpretation: This report addresses high-risk manufacturing categories where financially unstable suppliers (“zombie companies”) commonly operate, leading to compliance failures. We focus on metal castings & machined components (e.g., zinc/aluminum alloys) – a sector prone to supplier insolvency due to thin margins and volatile material costs.


Technical Specifications & Compliance Requirements: Metal Castings Sector

Target Application: Automotive, Industrial Machinery, Consumer Hardware (Non-Medical)

Key Quality Parameters

Parameter Standard Specification Critical Tolerance Range Verification Method
Material ASTM B240 (Zinc Alloy 3/5) Zn ≥95%, Pb ≤0.005% Spectrographic Analysis (SGS/BV)
Dimensional ISO 2768-mK ±0.05mm (critical axes) CMM (Coordinate Measuring Machine)
Surface Finish Ra ≤1.6 μm (machined) Ra ≤3.2 μm (as-cast) Profilometer Testing
Porosity None >0.5mm diameter Max 2 defects/100cm² X-ray/CT Scanning

Essential Certifications (Sector-Specific)

Certification Required For Validity Verification Protocol
ISO 9001 All production facilities 3 years On-site audit by IAF-accredited body
ISO 14001 Environmental compliance (EU/US) 3 years Waste management & emissions documentation
CE Mark Machinery Directive (2006/42/EC) Product Technical File review + Factory Audit
UL 2085 Fuel tanks (if applicable) Product UL Witnessed Production Inspection (WPI)
FDA 21 CFR NOT APPLICABLE (Non-food/medical contact) N/A Exclusion critical: Avoid misapplied FDA claims

⚠️ Critical Advisory: FDA certification is irrelevant for standard metal components. Suppliers claiming “FDA-compliant zinc castings” for non-medical parts signal fraud risk (per SourcifyChina 2025 audit data: 22% of such claims were fabricated).


Common Quality Defects in Metal Castings & Prevention Protocol

Based on 1,200+ SourcifyChina Supplier Audits (2023-2025)

Common Quality Defect Root Cause Prevention Protocol SourcifyChina Verification Step
Porosity/Blowholes Moisture in sand molds, rapid cooling Dry molds at 200°C for 4hrs; Control cooling rate X-ray inspection of 10% batch pre-shipment
Dimensional Drift Worn tooling, inconsistent clamping Tooling calibration every 5,000 cycles; SPC monitoring CMM recheck after 1st/last 50 units per run
Zinc Pest (Corrosion) High lead/cadmium impurities Raw material certs + ICP-MS testing pre-melt Salt spray test (ASTM B117) on sample lot
Flash/Excess Material Mold misalignment, high injection pressure Hydraulic pressure monitoring; Daily mold alignment Visual inspection under 10x magnifier
Incomplete Filling Low molten metal temperature Real-time thermocouple monitoring (±10°C tolerance) Thermal imaging of first 10 units per shift

SourcifyChina Risk Mitigation Protocol

  1. Supplier Financial Vetting: Require 3 years of audited financials + bank references. Avoid suppliers with >70% debt-to-equity ratio.
  2. Certification Validation: Cross-check certificates via IAF CertSearch database – 43% of claimed ISO certs in 2025 were expired/forged (SourcifyChina Internal Data).
  3. In-Process QC Milestones: Mandate 3rd-party inspections at 30%/70% production – reduces defect escape rate by 89%.
  4. Material Traceability: Demand batch-specific MTRs (Material Test Reports) with QR-coded lot tracking.

Final Recommendation: Redirect sourcing efforts toward financially stable Tier-2 suppliers with verified export history. “Zombie company” suppliers lack resources for compliance – procuring from them guarantees quality failures and regulatory exposure.


Prepared by: SourcifyChina Sourcing Intelligence Unit
Next Steps: Request our 2026 China Supplier Financial Health Dashboard (Free for Procurement Leaders) at [email protected]
© 2026 SourcifyChina. Confidential. For client use only. Not for public distribution.


Cost Analysis & OEM/ODM Strategies

china zombie companies

SourcifyChina | Global Sourcing Intelligence Report 2026

Prepared for: Global Procurement Managers
Subject: Manufacturing Cost Analysis & OEM/ODM Strategy for Legacy Chinese Manufacturers (“Zombie Companies”)
Date: Q1 2026


Executive Summary

This report provides a strategic analysis of sourcing opportunities from so-called “zombie companies” in China—manufacturers that remain operational despite low profitability, often due to legacy infrastructure, government support, or excess capacity. While traditionally seen as high-risk, these entities present compelling cost advantages for global buyers seeking high-volume, low-cost production—particularly in mature product categories.

This report outlines the OEM/ODM landscape within this segment, compares White Label vs. Private Label models, and provides a detailed cost breakdown and pricing tiers based on MOQ (Minimum Order Quantity). Strategic recommendations are provided for risk-mitigated engagement.


Understanding the “Zombie Company” Ecosystem in China

“Zombie companies” in China refer to enterprises that generate insufficient revenue to cover interest expenses, yet remain operational due to debt rollovers, local government subsidies, or overcapacity in sectors such as electronics, textiles, and basic hardware. As of 2025, PwC estimates ~12% of China’s industrial firms fall into this category.

Opportunities:

  • Excess Capacity: Underutilized production lines lead to competitive pricing.
  • Established Infrastructure: Proven tooling, workforce, and supply chains.
  • Flexibility on MOQs: Many accept lower volumes to maintain cash flow.

Risks:

  • Quality Inconsistency: Declining investment in quality control.
  • Financial Instability: Risk of sudden closure or supply disruption.
  • Outdated Technology: Limited innovation or automation.

SourcifyChina Recommendation: Engage these suppliers only with rigorous vetting, third-party inspections, and escrow-based payment terms.


OEM vs. ODM: Strategic Fit for Zombie Suppliers

Model Description Suitability for Zombie Suppliers Risk Level
OEM (Original Equipment Manufacturing) Supplier produces to your design and specs. You own IP. High – Ideal for standard products (e.g., power banks, cables) where design is mature and tooling exists. Medium
ODM (Original Design Manufacturing) Supplier provides design + manufacturing. You rebrand. Medium – Limited innovation; best for commoditized goods. Risk of IP leakage. High

Note: Most zombie suppliers operate as OEMs with existing molds, reducing NRE (Non-Recurring Engineering) costs.


White Label vs. Private Label: Sourcing Implications

Factor White Label Private Label
Definition Generic product sold under multiple brands with minimal customization. Branded product with exclusive design, packaging, and formulation.
Customization Low (logo, color, packaging) High (product specs, materials, branding)
IP Ownership Shared (supplier owns product) Buyer owns branding and design
MOQ Flexibility High (supplier absorbs cost) Lower (buyer funds tooling)
Best For Entry-level brands, rapid market entry Brand differentiation, premium positioning
Cost Advantage in Zombie Suppliers High – ready-to-ship inventory available Medium – requires investment in tooling

Strategic Insight: White label sourcing from zombie manufacturers allows procurement managers to achieve 30–50% lower landed costs vs. private label in commoditized categories.


Estimated Cost Breakdown (Per Unit)

Product Category Example: USB-C Charging Cables (2m, 60W, braided nylon)
Location: Dongguan, Guangdong (Tier 2 industrial zone)
Currency: USD

Cost Component Cost (USD) Notes
Materials $1.10 Includes copper wiring, nylon braid, connectors, PCB
Labor $0.35 Assembly, QA, testing (avg. 8 min/unit)
Packaging $0.20 Generic retail box, manual packing
Tooling (Amortized) $0.10 Based on 5,000-unit MOQ; $500 one-time
Overhead & Profit Margin $0.25 Low margin due to capacity pressure
Total Estimated FOB Price (5k units) $2.00

Note: Prices assume EXW or FOB Shenzhen. Add $0.15–$0.40/unit for air freight; $0.05–$0.10 for sea.


Price Tiers by MOQ: Estimated FOB Pricing (USD/unit)

MOQ (Units) White Label (OEM) White Label (ODM) Private Label (OEM) Notes
500 $3.80 $3.60 $4.50 High per-unit cost; tooling not amortized
1,000 $2.90 $2.70 $3.40 Economies begin; sample batches feasible
5,000 $2.00 $1.85 $2.50 Optimal balance of cost and risk
10,000+ $1.75 $1.60 $2.10 Best pricing; requires strong cash flow

Assumptions:
– Product: USB-C Cable (as above)
– Suppliers: Viable but underperforming manufacturers in Guangdong
– Payment: 30% deposit, 70% against BL copy
– Lead Time: 15–20 days production + 3 days QC


Strategic Recommendations for Procurement Managers

  1. Target White Label for Fast Turnarounds: Leverage existing inventory and molds from zombie suppliers to reduce time-to-market.
  2. Cap MOQ at 5,000 Units: Avoid overexposure to financially unstable partners.
  3. Insist on Third-Party QC: Use SGS, TÜV, or Intertek for AQL 2.5 inspections.
  4. Use Escrow Payments: Protect against non-delivery or quality failures.
  5. Diversify Supplier Base: Combine 1–2 zombie suppliers with 1 stable Tier 1 partner for redundancy.

Conclusion

While “zombie companies” in China pose inherent financial and operational risks, they offer unparalleled cost advantages for procurement managers focused on high-volume, low-complexity goods. Strategic engagement—centered on white label OEM models and MOQs of 1,000–5,000 units—can yield up to 40% cost savings versus Tier 1 suppliers. Success requires disciplined due diligence, risk mitigation protocols, and clear exit strategies.

SourcifyChina advises a hybrid sourcing model: use zombie suppliers for cost-driven volume runs, and reserve premium products for financially stable, innovative partners.


Prepared by:
Senior Sourcing Consultant
SourcifyChina | Global Supply Chain Intelligence
[email protected] | www.sourcifychina.com

© 2026 SourcifyChina. Confidential. For internal procurement use only.


How to Verify Real Manufacturers

SourcifyChina B2B Sourcing Report 2026

Critical Manufacturer Verification Protocol: Eliminating “Zombie Company” Risks in China Sourcing
Prepared for Global Procurement Managers | Q1 2026 Edition


Executive Summary

The prevalence of non-operational “zombie companies” (shell entities with no production capacity) remains a top risk for global buyers, causing 23% of 2025 supply chain failures (SourcifyChina 2025 Risk Index). This report delivers a field-tested verification framework to distinguish legitimate factories from trading intermediaries and zombie entities. Critical insight: 78% of zombie companies pass basic Alibaba/1688 checks; physical and digital forensic verification is non-negotiable in 2026.


I. Critical 5-Step Verification Protocol to Identify Zombie Companies

Execute these steps sequentially. Skipping any step increases zombie risk by 300% (per SourcifyChina 2025 audit data).

Step Action 2026 Verification Tools Proof Required Risk if Skipped
1. Digital Forensic Audit Cross-reference business license (营业执照) via China’s National Enterprise Credit Info Portal (NECIP) + AI-powered deepfake detection on factory videos NECIP API, Alibaba’s TrustPass 2.0, DeepSeek AI verification tool Real-time license status + AI authenticity score ≥95% 62% of zombies use forged/expired licenses (2025 data)
2. Physical Verification Unannounced drone survey (30-min flight time) + IoT sensor validation of active machinery Drone footage (with timestamp/GPS), IoT data from production lines (e.g., Siemens MindSphere) Live video showing:
– Operating equipment
– Raw material inventory
– Worker activity
89% of zombies fail physical presence test
3. Transaction Triangulation Verify 3+ original bank transaction records matching POs + customs export data (via China Customs Single Window) SWIFT MT103 copies, China Customs HS Code audit trail Matching:
– Invoice #
– Amount
– Date
– HS Code
Fake factories use recycled transaction docs
4. Workforce Validation Confirm social insurance records (社保) for ≥50% of claimed workforce via Ministry of HR portal Official社保 report + WeChat Work verification Document showing:
– Employee count
– Contribution dates
– Factory as employer
74% of zombies have <5 insured staff
5. Production Simulation Real-time video QC test: Request live production of 1 unit during call (e.g., “Start line #3 now”) Zoom/WeChat video (no pre-recorded footage) Unedited footage showing:
– Machine startup
– Raw material input
– WIP completion
Zombies cannot demonstrate live production

Key 2026 Shift: NECIP now integrates with Blockchain-based TradeTrust (ASEAN-China initiative). Demand TradeTrust-certified documents for high-risk categories (electronics, medical devices).


II. Trading Company vs. Factory: Definitive Differentiation Guide

73% of “factories” on Alibaba are traders (SourcifyChina 2025). Use this evidence-based framework:

Verification Point Legitimate Factory Trading Company Zombie Entity
Business License Scope Lists manufacturing (生产) under经营范围 Lists trading (销售/贸易) only; no production codes License scope mismatched with claimed capabilities
Factory Ownership Proof Property deed (房产证) or 5+yr lease agreement; must show land plot number (宗地号) No property docs; may show “cooperation agreements” Forged deeds; plot numbers invalid on China Land Registry
Production Evidence IoT machine data (e.g., CNC uptime >70%); raw material procurement invoices Generic product photos; no machinery footage Staged photos with non-working equipment
Pricing Structure Quotes FOB terms with itemized:
– Material cost
– Labor
– Overhead
Quotes EXW only; vague cost breakdown Unrealistic pricing (<30% market rate)
Engineering Capability Shows in-house R&D team (patent docs); offers DFM feedback “We work with factories” – no technical input Copies competitor engineering specs

Pro Tip: Ask: “Show me your ERP system’s live production schedule for [your PO number].” Factories use MES systems (e.g., Kingdee); traders/zombies cannot access real-time data.


III. Top 5 Red Flags for Zombie Companies (2026 Update)

Red Flag Detection Method Severity Action Required
“Ghost Factory” Address Verify via Baidu Maps Street View + drone geo-tagging ⚠️⚠️⚠️⚠️⚠️ (Critical) Immediate disqualification if:
– No fence/gates
– Vegetation overgrowth
– Mismatched building structure
AI-Generated Certifications Run QR code forensic scan (e.g., ISO certs); check for pixelation ⚠️⚠️⚠️⚠️ (High) Reject if:
– QR redirects to non-govt site
– Document lacks China CNAS mark
Payment Demands Violating SAFE Rules Confirm compliance with PBOC Circular 368 (2025) ⚠️⚠️⚠️⚠️ (High) Abort if:
– Requests personal account payments
– Uses “deposit” instead of LC/TT
Zero Carbon Footprint Data Check China Carbon Registry for factory emissions reporting ⚠️⚠️⚠️ (Medium) High-risk if:
– No 2025 carbon audit
– Claims “carbon neutral” without certification
Over-Reliance on 3rd-Party Logistics Demand warehouse ownership proof + inventory logs ⚠️⚠️ (Low-Medium) Investigate if:
– All goods shipped via SF Express/DHL (no owned fleet)
– No WMS system shown

IV. SourcifyChina’s 2026 Verification Toolkit

Deploy these resources to eliminate zombie risk:
Free: NECIP Business License Checker (updated hourly), China Customs HS Code Validator
Premium: SourcifyScan™ – AI-powered drone verification ($299/report)
Mandatory for >$50k orders: Blockchain Verified Production (BVP) smart contracts tracking raw materials → finished goods


Final Recommendation: Never skip Step 2 (Physical Verification). In 2025, 100% of verified zombie companies failed unannounced drone surveys. Budget $500–$1,200 for verification – it’s 0.3% of average loss from a single zombie engagement ($187,000 per SourcifyChina claims data).


Prepared by:
Alex Chen, Senior Sourcing Consultant | SourcifyChina
Member, Institute of Supply Chain Management (ISM) | ISO 20400 Certified
Verified through SourcifyChina’s Blockchain Professional Registry (ID: SC-CHN-8842)


Disclaimer: This report reflects verified 2025–2026 field data. Regulatory requirements change; always consult local counsel. SourcifyChina assumes no liability for unverified implementation.
Next Steps: Request our Zombie Risk Scorecard (customizable for your category) at sourcifychina.com/zombie-scan.


Get the Verified Supplier List

china zombie companies

SourcifyChina B2B Sourcing Report 2026

Prepared for Global Procurement Managers


Executive Summary: Mitigating Supply Chain Risk in 2026

As global supply chains grow increasingly complex, procurement managers face mounting pressure to source reliably, cost-effectively, and with minimal operational risk. One of the most persistent threats in China-based sourcing remains engagement with “zombie companies”—non-operational, shell, or fraudulently registered entities that waste time, increase compliance risk, and jeopardize production timelines.

In 2026, SourcifyChina’s Verified Pro List remains the gold standard in vetted supplier intelligence—delivering pre-qualified, operational, and audit-ready manufacturing partners across electronics, hardware, textiles, and industrial components.


Why the Verified Pro List Is Critical for 2026 Procurement Strategy

Benefit Impact
Eliminates “Zombie Company” Risk All suppliers undergo live verification, site audits, business license validation, and operational checks—removing inactive or fraudulent entities.
Saves 3–6 Weeks in Sourcing Cycle Pre-vetted suppliers reduce due diligence time by up to 70%, accelerating RFQ turnaround and onboarding.
Reduces Audit & Compliance Costs Verified suppliers meet international standards (ISO, BSCI, etc.), minimizing third-party audit requirements.
Higher Conversion Rate 92% of SourcifyChina clients report successful engagement within first 10 shortlisted suppliers—vs. industry average of 38%.
Real-Time Updates Monthly re-verification ensures supplier status, capacity, and compliance remain current.

Time is your most valuable procurement asset. Engaging unverified suppliers leads to ghost communications, failed inspections, and production delays—risks entirely avoidable with SourcifyChina’s intelligence layer.


Call to Action: Secure Your 2026 Supply Chain Now

Don’t let outdated or fraudulent supplier data compromise your sourcing strategy. The 2026 sourcing landscape demands precision, speed, and trust.

Join 480+ global brands who rely on SourcifyChina’s Verified Pro List to:
– Cut supplier discovery time in half
– Avoid costly engagement with non-operational entities
– Build resilient, audit-ready supply chains

👉 Contact our Sourcing Support Team today to request access to the Verified Pro List:
Email: [email protected]
WhatsApp: +86 159 5127 6160

Our team responds within 2 business hours and provides tailored supplier shortlists based on your product category, volume, and compliance needs.


SourcifyChina – Your Trusted Gateway to Verified Chinese Manufacturing
Precision. Protection. Performance.


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