Is it true that China keeps zombie companies on life…
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Is it true that China keeps zombie companies on life ?
Reading the ChinaTalk NL piece last night and it clicked something I'd been chewing on for a while: China's throwing 4x more money at R&D since 2015, yet productivity growth has basically flatlined since 2008. All that innovation and the needle barely moves. weird, right.
Turns out a big chunk of the answer is what they called zombie firms. Companies bleeding money for years, kept breathing by local governments through cheap loans, tax breaks, subsidies that make zero economic sense.
Example: Dayun Auto, biggest heavy-truck maker in Shanxi. Gambled on EVs, got wrecked by competition, suppliers had to drag it into court-ordered restructuring in 2024.
This company had already been handed EV subsidies worth 20% of its earnings, tax breaks over 10% of profits, a state-owned buyer guaranteeing a third of its truck sales, even a highway toll exemption. A former salesman there told Bloomberg this : "It's impossible for Dayun to go bankrupt. The government would never allow it."
Brutal!
Local officials get scored on growth AND on keeping people employed.
Close a zombie firm, you get layoffs, you get unrest, you get flagged. so officials keep shoveling credit into dead companies instead of eating a short-term political hit, even though it's strangling the country's long-term productivity.
Beijing's known this for 30 years. Zhu Rongji tried to fix it in the 90s. Latest attempt: letting the central government directly force liquidation of zombie firms instead of relying on local officials to do it themselves, because obviously they won't. But until you change what local careers get rewarded for, they'll just find the next workaround.
Always do.
IMF estimated clearing this out could add 0.7 to 1.2 points to China's GDP growth.
Can you confirm this ?
#local
Reading the ChinaTalk NL piece last night and it clicked something I'd been chewing on for a while: China's throwing 4x more money at R&D since 2015, yet productivity growth has basically flatlined since 2008. All that innovation and the needle barely moves. weird, right.
Turns out a big chunk of the answer is what they called zombie firms. Companies bleeding money for years, kept breathing by local governments through cheap loans, tax breaks, subsidies that make zero economic sense.
Example: Dayun Auto, biggest heavy-truck maker in Shanxi. Gambled on EVs, got wrecked by competition, suppliers had to drag it into court-ordered restructuring in 2024.
This company had already been handed EV subsidies worth 20% of its earnings, tax breaks over 10% of profits, a state-owned buyer guaranteeing a third of its truck sales, even a highway toll exemption. A former salesman there told Bloomberg this : "It's impossible for Dayun to go bankrupt. The government would never allow it."
Brutal!
Local officials get scored on growth AND on keeping people employed.
Close a zombie firm, you get layoffs, you get unrest, you get flagged. so officials keep shoveling credit into dead companies instead of eating a short-term political hit, even though it's strangling the country's long-term productivity.
Beijing's known this for 30 years. Zhu Rongji tried to fix it in the 90s. Latest attempt: letting the central government directly force liquidation of zombie firms instead of relying on local officials to do it themselves, because obviously they won't. But until you change what local careers get rewarded for, they'll just find the next workaround.
Always do.
IMF estimated clearing this out could add 0.7 to 1.2 points to China's GDP growth.
Can you confirm this ?
#local
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