Approximately 7.51% of companies within China’s industrial sector are considered “zombies”, according to a July 27 report released by the Renmin University of China’s National Academy of Development and Strategy.
In particular, a zombie refers not only to a company that’s underperforming, but one which has received loans at interest rates lower than that of the lowest market rate, says Nie Huihua, a leading author of the report. Zombies are almost disproportionately state-owned or collectively owned enterprises in a number of heavy industry sectors, including but not limited to the steel, construction, real estate, trade and miscellaneous sectors.
The report believes that the country has been effective in tackling zombies over the last decade and a half, as the 7.51% marks a conspicuous improvement since 2000, where zombies consist 30% of all industrial related SOEs. Since 2004, the number of zombies have both decreased as well as stabilized.
Zombies are especially prevalent in the nation’s southwestern, northwestern and northeastern provinces where heavy industry related SOEs dictate a region’s economic vigor. Over 2005 to 2013, the number of zombies have increased in western provinces.
Lastly, the report argues that to totally eliminate this problem, SOEs should be encouraged to engage in merger and acquisitions to boost efficiency, allocate overproduced resources to help build infrastructure in impoverished regions, as well as erect social safety nets to ensure that the negative effects of zombies do not spill over.