IMF warns of dangerous debt growth of 'zombie companies' in Asia
Asia has become the world's largest hub of so-called zombie companies—enterprises that have been unable to independently service their debts for years, but continue to operate thanks to creditor support.
According to the International Monetary Fund, such companies already account for more than a fifth of corporate debt in the Asian economies studied. This creates growing risks for banks and may hinder the region's economic growth.
This is reported by the Financial Times, citing a new IMF report on global financial stability (Global Financial Stability Report), released on October 13.
According to the Fund's estimates, in ten Asian economies, the share of debt attributable to financially unviable enterprises reached 21.4% of total corporate indebtedness. In 2008, this figure was less than 10%.
The study covers, in particular, China, India, South Korea, Thailand, and Indonesia. Japan, which previously experienced a large-scale crisis of problem corporate lending, was not included in the current sample.
Banks continue to lend to loss-making enterprises
The IMF defines zombie companies as enterprises whose profits are insufficient to cover interest payments on loans for at least three consecutive years.
Under normal market conditions, such companies would have to restructure, find new investors, or cease operations. However, banks often continue to lend to them to avoid officially recognizing problem debts and corresponding losses.
As a result, unprofitable enterprises retain access to financing, and banks postpone the need to write off part of the loans.
The highest concentration of such loans is observed in banks with relatively low capitalization levels. According to IMF data, in less capitalized Asian banks, zombie companies account for about 16% of the loan portfolio, while in financial institutions with a stronger capital base — approximately 12%.
This creates the risk of accumulation of hidden losses. If the financial position of borrowers worsens or the cost of lending increases, banks may face the need to simultaneously recognize significant losses.
According to IMF estimates, if typical default and recovery rates for prolonged financial difficulties were applied to zombie company debts in the studied countries, almost 23% of such indebtedness as of 2025 would require write-off or restructuring.
This is a calculated scenario, not a forecast of inevitable losses for the banking system.
Corporate debt in Asia exceeds global level
The problem is exacerbated by the overall growth of debt burden on Asian business.
At the end of 2025, the volume of corporate lending in ten Asian economies averaged 107% of GDP. Before the 2007 global financial crisis, this figure was 81%.
For comparison, the average global corporate debt level is about 93% of GDP, and in emerging market countries — 99%.
Thus, Asian enterprises not only have a significant debt burden, but also a growing share of these obligations is being accumulated by companies with insufficient income to service loans.
This may worsen access to capital for financially sound enterprises. Banking resources are directed to supporting problem borrowers instead of investing in productive business development.
China repeats dangerous trends of the Japanese economy
Of particular concern to economists is the situation in China, where state support for industry and the availability of bank lending allow certain loss-making enterprises to continue operating.
According to estimates by the French bank Natixis, the share of Chinese companies whose profits are insufficient to pay interest on loans reached 12.5% in the first half of 2026. In 2019, it was about 6%.
This indicator is calculated using a different methodology than the IMF estimate, so they cannot be directly compared.
Additional evidence of the problem was previously provided by the Federal Reserve Bank of Dallas. According to its research, the share of assets of Chinese non-financial companies accounted for by "zombie" category enterprises increased from 5% in 2018 to 16% in 2024.
The most difficult situation has developed in the Chinese real estate sector, where the corresponding figure reached 40%. Economists link this to the multi-year crisis of developers and the practice of continuing to lend to insolvent borrowers.
Researchers at the Dallas Fed point to the similarity of these processes to the situation in Japan in the late 1980s and 1990s.
At that time, Japanese banks long supported loss-making enterprises without fully recognizing credit losses. This contributed to inefficient capital allocation, reduced productivity, and prolonged economic stagnation, known as the "lost decades."
At the same time, researchers note that a significant portion of China's corporate debt is financed by domestic savings. This reduces the risk of a sudden debt crisis due to foreign capital outflows, but also allows banks to support economically unviable enterprises longer.
IMF warns of hidden risks to the financial system
The zombie company problem is part of broader IMF concerns about the resilience of the global financial system.
In its October report, the Fund notes that global financial markets have so far demonstrated the ability to withstand economic and geopolitical shocks. However, weak banks, high debt burdens, and opaque financial risks may amplify the consequences of new crises.
Unlike Europe, Latin America, and Africa, where the concentration of zombie companies remains relatively low, in Asia this problem has reached significant scale.
The main danger is that supporting unprofitable enterprises can hide problems in bank balance sheets for years, while limiting investment in more efficient companies.
Even without a large-scale banking crisis, this can slow economic growth and weaken the region's competitiveness.
Based on materials from: Financial Times, International Monetary Fund, Federal Reserve Bank of Dallas