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Resolving China's Zombies: Tackling Debt and Raising Productivity


  • W. Raphael Lam
  • Alfred Schipke
  • Yuyan Tan
  • Zhibo Tan


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

  • W. Raphael Lam & Alfred Schipke & Yuyan Tan & Zhibo Tan, 2017. "Resolving China's Zombies: Tackling Debt and Raising Productivity," IMF Working Papers 17/266, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:17/266

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    Cited by:

    1. 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.
    2. Ana Fontoura Gouveia & Christian Osterhold, 2018. "Fear the walking dead: zombie firms, spillovers and exit barriers," Working Papers w201811, Banco de Portugal, Economics and Research Department.
    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. Michael Funke & Rongrong Sun & Linxu Zhu, 2018. "The Credit Risk of Chinese Households – A Micro-Level Assessment," CFDS Discussion Paper Series 2018/3, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.


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