Resolving China's Zombies: Tackling Debt and Raising Productivity

By Waikei R Lam, Alfred Schipke, Yuyan Tan, Zhibo Tan

November 27, 2017

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Waikei R Lam, Alfred Schipke, Yuyan Tan, and Zhibo Tan. Resolving China's Zombies: Tackling Debt and Raising Productivity, (USA: International Monetary Fund, 2017) accessed December 21, 2024

Also available in: 中文

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Asset and liability management, Asset management, Debt burden, Economic sectors, External debt, Production, Productivity, Public enterprises, Total factor productivity

Keywords: Asset management, Capital frowth, China, Company, Corporate debt, Debt burden, Debt restructuring, Firm identification code, Government, Liability-to-asset ratio, Nonviable company, Overcapacity firm, Productivity, Public enterprise, Public enterprises, Revenue data, State-owned enterprises, Steel firm, Total factor productivity, WP, Zombie firm, Zombie firms

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/266
Stock No:

WPIEA2017266
ISBN:

9781484330722
ISSN:

1018-5941

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