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Zombie firms and over-capacity in Chinese manufacturing

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  • Shen, Guangjun
  • Chen, Binkai

Abstract

The problems of over-capacity and zombie firms in China's manufacturing attract all aspects of attention, but academic analysis is still absent. Using firm-level data of Chinese manufacturing, this study first documents the problems of over-capacity and zombie firms during 2011–2013. We find that the over-capacity problem is much more severe in the northeastern and western regions of China, in heavy chemical industries, and in state-owned sector. The distribution of zombie firms is in a similar manner across region, industry and ownership. We also empirically test the relationship between zombie firms and over-capacity, finding that zombie firms cause and worsen over-capacity by crowding out healthy firms.

Suggested Citation

  • Shen, Guangjun & Chen, Binkai, 2017. "Zombie firms and over-capacity in Chinese manufacturing," China Economic Review, Elsevier, vol. 44(C), pages 327-342.
    • Handle: RePEc:eee:chieco:v:44:y:2017:i:c:p:327-342
    DOI: 10.1016/j.chieco.2017.05.008
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    More about this item

    Keywords

    Over-capacity; Capacity utilization; Zombie firm; Crowd out; China;
    All these keywords.

    JEL classification:

    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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