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Curbing zombie firms: Evidence from China's fair competition review system

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  • Bi, Chao
  • Wang, Jinghua

Abstract

This paper investigates the impact of administrative monopoly on zombie firms. Using the implementation of Fair Competition Review System (FCRS) in China as a quasi-natural experiment, we show that FCRS significantly decreases the zombification of firms. The effect is realized by promoting competitive neutrality in subsidies, optimizing credit allocation, stimulating firm innovation and market competition. The relation is intensified in regions with stricter implementation, greater economic pressure, better business environment and capital-intensity industry. Furthermore, the FCRS facilitates the dezombification of normal firms and the normalization of zombie firms, thereby boosting total factor productivity. The results highlight the necessity to focus on deepening fair competition policies to resolve zombie firm issues more effectively, and demonstrate that decreasing administrative monopoly is not merely a regulatory reform, but a fundamental catalyst for revitalizing market dynamics and fostering sustainable economic growth.

Suggested Citation

  • Bi, Chao & Wang, Jinghua, 2026. "Curbing zombie firms: Evidence from China's fair competition review system," Economic Modelling, Elsevier, vol. 162(C).
    • Handle: RePEc:eee:ecmode:v:162:y:2026:i:c:s0264999326001823
    DOI: 10.1016/j.econmod.2026.107653
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    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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