Where do zombies lurk in China? Mostly in steel and real estate, report finds

A sweeping analysis of the mainland’s “zombie” firms found that more than half of its steel mills and nearly half of all property developers qualified for the title.

The report, by the National Academy of Development and Strategy at Renmin University, also found the bulk of the firms were state-owned companies, many of which emerged after 2008, when China spent 4 trillion yuan to counter the effects of the global recession.

The report defined zombie companies as firms that received cheap funding but ran at a loss or did not generate enough profit to cover their interest payments.

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They pose a challenge for the leadership which has emphasised structural reforms to eliminate inefficiencies but at the same time wants state companies to become “bigger and stronger”.

The report, covering more than 800,000 industrial firms, said at least 7.5 per cent of industrial companies were zombies in 2013, according to latest available data. About 350 listed companies, or about 13 per cent of the total, also qualified as zombie firms last year, even though they are supposed to be the best businesses.

Nie Huihua, vice-dean of the academy and main author of the report, said his team examined the regional distribution of the zombie firms, and what factors ­allowed them to exist.

“Tackling the problem of zombie companies largely depends on Beijing’s resolution and firm hand,” Nie said.

“Of course, we will see resistance from vested interests at various levels, but it is not an issue that can’t be solved.”