Asia has become the world’s largest producer of zombie companies, the IMF has warned, as a rising share of corporate debt is concentrated on companies in the region that cannot service it. In its Global Financial Stability Report published on Tuesday, IMF researchers found that across 10 Asian economies — including China, India, Thailand, Indonesia and South Korea — zombie companies now account for 21.4 per cent of outstanding corporate debt in the region, up from under 10 per cent in 2008. Zombie companies are defined by the IMF as corporations whose earnings have not covered interest payments for at least three years, with survival often sustained by bank forbearance, suggesting a build-up of systemic financial risk.
The unnatural extension of thousands of companies beyond their natural economic life is widely seen by analysts as the root cause of Japan’s “lost decades” of economic stagnation from the 1990s onwards and the country’s acute non-performing loan crisis of the early 2000s. Japan’s current zombie quota was not included in the IMF’s latest research. At the end of 2025, corporate credit in Asia averaged 107 per cent of GDP, up from 81 per cent before the global financial crisis in 2007, notably higher than the global average of 93 per cent and 99 per cent among emerging market economies.
The IMF said this rising share of corporate debt is increasingly concentrated in firms that cannot service it. Recent analysis suggests corporate zombification is building rapidly in China, where Natixis analysts found the share of listed Chinese companies with insufficient revenue to cover interest payments rose to 12.5 per cent in June 2026 from about 6 per cent in 2019 — about double the global rate of 6.5 per cent. State policies favouring advanced industries like semiconductors supported rapid development but not profitability.
China’s National Bureau of Statistics said the percentage of lossmaking companies with annual operating revenues of Rmb20mn ($3mn) or above was 29.33 per cent in August 2026, up from 20.8 per cent the same month five years ago. The Federal Reserve Bank of Dallas identified mounting evidence of “zombie lending” in China, with banks rolling over bad loans to unprofitable companies rather than recognising losses, mirroring Japan’s experience in the 1980s and 1990s. The IMF said the share of zombie companies was relatively small in Latin America, Europe and Africa, where only about one in eight groups was a zombie in 2024, concentrated in a handful of large borrowers.
Source: Financial Times Companies · Summarized by HeadlinesBriefing