Beijing can boost economic growth if it beats the corporate ‘zombies’, IMF says
Economy could grow by another 1.2 percentage points a year if authorities work harder to remove firms dragging it down, according to working paper
If Beijing can successfully tackle an army of corporate “zombies” in the economy, it can boost the country’s growth by up to 1.2 percentage points a year, according to a working paper released by the International Monetary Fund this week.
Chinese President Xi Jinping has declared war on corporate “zombies”, or firms being kept afloat by external funding support, as a key part of his supply-side structural reform to phase out unproductive facilities and make growth more efficient.
But loss-making enterprises backed by local governments are still sucking financial resources into their operations and dragging down potential economic growth in the world’s second-biggest economy.
The IMF paper – co-authored by W. Raphael Lam and Alfred Schipke from the IMF and two Chinese researchers – argued that Beijing should work harder to spot “zombies” and accelerate their removal to avoid “debt vulnerabilities” and improve growth potential.
Eliminating zombies could add at least 0.7 percentage points, and at most 1.2 percentage points, to China’s long-term growth every year, according to the paper. It would be a significant boost to China’s US$12 trillion economy, which saw gross domestic product growth slow to 6.7 per cent last year.