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Resolving China's Zombies: Tackling Debt and Raising Productivity

Author

Listed:
  • Mr. Waikei R Lam
  • Mr. Alfred Schipke
  • Yuyan Tan
  • Zhibo Tan

Abstract

Nonviable “zombie” firms have become a key concern in China. Using novel firm-level industrial survey data, this paper illustrates the central role of zombies and their strong linkages with stateowned enterprises (SOEs) in contributing to debt vulnerabilities and low productivity. As a group, zombie firms and SOEs account for an outsized share of corporate debt, contribute to much of the rise in debt, and face weak fundamentals. Empirical results also show that resolving these weak firms can generate significant gains of 0.7–1.2 percentage points in long-term growth per year. These results also shed light on the ongoing government strategy to tackle these issues by evaluating the effects of different restructuring options. In particular, deleveraging, reducing government subsidies, as well as operational restructuring through divestment and reducing redundancy have significant benefits in restoring corporate performance for zombie firms.

Suggested Citation

  • Mr. Waikei R Lam & Mr. Alfred Schipke & Yuyan Tan & Zhibo Tan, 2017. "Resolving China's Zombies: Tackling Debt and Raising Productivity," IMF Working Papers 2017/266, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2017/266
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    Citations

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    Cited by:

    1. Michael Funke & Rongrong Sun & Linxu Zhu, 2022. "The credit risk of Chinese households: A micro‐level assessment," Pacific Economic Review, Wiley Blackwell, vol. 27(3), pages 254-276, August.
    2. Moho Shiraishi & Go Yano, 2022. "The Financial Crisis in 2008, the Stimulus Package, and Distortion of Financial Intermediation in China: A Survival Analysis Approach," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 64(2), pages 280-323, June.
    3. Dai, Xiaoyong & Qiao, Xiaole & Song, Lin, 2019. "Zombie firms in China's coal mining sector: Identification, transition determinants and policy implications," Resources Policy, Elsevier, vol. 62(C), pages 664-673.
    4. Jingzhu Chen & Yuemei Ji, 2022. "Is Finance Good for Growth? New Evidence from China," CESifo Working Paper Series 9882, CESifo.
    5. Augier, Laurent & Yin, Chao, 2022. "Financial market economy vs self-financing economy and the role of risk aversion," International Economics, Elsevier, vol. 172(C), pages 15-28.
    6. repec:zbw:bofitp:2018_012 is not listed on IDEAS
    7. Holz, Carsten A., 2018. "The Unfinished Business of State-owned Enterprise Reform in the People’s Republic of China," MPRA Paper 94093, University Library of Munich, Germany.
    8. Christian Osterhold, 2018. "Fear the walking dead: zombie firms, spillovers and exit barriers," Working Papers w201811, Banco de Portugal, Economics and Research Department.
    9. Michael Funke & Rongrong Sun & Linxu Zhu, 2022. "The credit risk of Chinese households: A micro‐level assessment," Pacific Economic Review, Wiley Blackwell, vol. 27(3), pages 254-276, August.
    10. Xiaole Qiao & Lin Song & Xiaomin Fan, 2022. "How do zombie firms affect innovation: from the perspective of credit resources distortion," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 36(1), pages 67-87, May.

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