Caixin Explains: Why It’s So Hard To Kill Zombies in China

A zombie firm “僵尸企业” (jiāngshī qǐyè) is a persistently money-losing firm that survives through its access to subsidized loans. For Beijing, “persistently” means three years of losses. Like real zombies, these firms should be dead, but lurch on regardless. They also leave an unholy stink in their wake — zombies suck up credit that could go to more productive companies, and are ideal hosts within which non-performing loans can fester and multiply, potentially creating systemic financial risks. China didn’t invent zombie firms — the term first gained popularity during Japan’s “Lost Decade” of economic stagnation in the 1990s — but Chinese zombies do have a couple of additional characteristics, with the central government also considering misalignment with the state’s industrial policies, or poor environmental and technological standards, as markers of zombification.