Reader question:

Please explain “zombie companies” in this story (China issues blueprint on overhauling bloated state industry, AP, September 14, 2015):

At a news conference Monday, the deputy head of the Cabinet body that oversees China’s biggest state enterprises said chronically money-losing “zombie companies” will be cleaned up or shut down.

My comments:

Zombies are dead persons revived by magic or other supernatural powers. Zombies, according to voodoo beliefs in various parts of the world, may walk like the living once again but are deprived of their soul.

They are ghosts and skeletons of their former selves.

People, real people, are sometimes called zombies metaphorically if they are extremely tired and lifeless.

When a company, firm or business is likened to zombies, then the company, firm or business shares some of the characteristics of zombies.

They’re lifeless and apathetic, e.g. In other words, these companies are like dead men walking – they’re all but dead.

In short, zombie companies are businesses that have seen better, much better days.

However, sometimes some of the so-called zombies are kept alive by the government due to stability or other concerns.

In the West, too, zombies are sometimes kept alive because letting them go may cause major and unforeseeable consequences. A major bank, for example, may have been loss making for years but is kept alive by the government, via subsidies or bailouts, for similar considerations. Or, as they may say, the bank is too big to fail.

In our example, it appears the government is now ready to let big Chinese zombies go.

Well, for one thing, this isn’t the first time I’ve heard it. I, yours truly, have probably been around too long.

Joking aside, I mean, I’ve heard this before and so I’ll refrain from further comment. Let’s just say that I’ll believe it when I see it – that, this time, zombies will really be allowed to make do or die.

Anyway, here are media examples of zombies roaming the marketplace:

1. The term dates back to the 1987 when Edward Kane, of Boston College, referred to American savings and loans institutions that had effectively been wiped out by commercial-mortgage losses, but were allowed to continue operating, because regulators had hoped there would be a market rebound. Unfortunately, things continued getting worse and zombie companies’ losses soon tripled.

Mr. Kane said:

“These institutions have very distorted incentives, just as the zombies do in the horror movies.”

The media gave the term renewed popularity following the 2007/2008 global financial crisis when several companies in North America and Europe received bailouts, and hundreds of thousands of others found themselves trapped in a seemingly bottomless pit of high debt.

- What is a zombie company? MarketBusinessNews.com, undated.

2. You may have seen zombies in horror movies - the bodies of lost souls, neither alive nor dead - but experts are increasingly talking of a zombie colony in the UK economy, which is expanding and threatening to impede recovery and a return to growth.

The rise of so-called zombie companies is, to some extent, a consequence of the UK’s current record low interest rates.

Struggling companies can just about afford the interest payments on their loans, but not much more. There are zombie households, too - those on interest-only mortgages, yet unable to pay off the loan itself.

“A zombie company is one which is generating just about enough cash to service its debt, so the bank is not obliged to pull the plug on the loan,” explains Mark Thomas, business strategy expert at PA Consulting and author of The Zombie Economy.

“The company can limp along, it can survive, but it hasn’t got enough money to invest.”

According to R3, the industry group that represents insolvency practitioners, there are an estimated 146,000 zombie businesses in the UK - and, says R3, that figure is on the rise.

And according to experts around a third of these - approaching 50,000 - could be doomed to failure if interest rates go up:

“They could pull through, but urgent attention is needed to avoid the catastrophe of multiple failures and tens of thousands of job losses,” says Christine Elliott, chief executive of the Institute for Turnaround, which represents financial professionals brought in to help ailing companies.

- ‘Zombie’ companies eating away at economic growth, BBC.com, November 13, 2012.

3. The persistence of zero percent interest rates has allowed fully-fledged zombie companies to become a fixture of the US economy which is now home to ‘anaemic’ corporate investment.

Bond market veteran Bill Gross made these comments at the heart of his latest Investment Outlook, entitled ‘Say a little prayer’.

Gross, who runs the $1.4 billion Janus Global Unconstrained Bond fund, centred his latest commentary on the problems posed by current global debt dynamics and the continued use of low interest rates.

Likening the use of 0% credit as ‘feeding a fever’ to aid growth, Gross said the mechanism had failed to take hold and, instead, had created several detrimental by-products.

‘In the real economy, it seemed almost straightforward: if a central bank could lower the cost of debt and equity closer and closer to zero, then inevitably the private sector would take the bait – investing in cheap plant + equipment, technology, innovation – you name it.’

‘“Money for nothing – get your clicks for free”, I suppose. But no. Not so,’ he said. ‘Corporate investment has been anaemic.’

Gross said negative outcomes from zero bound interest rates were obvious, for example, with both bond and equity investors hunting for yield and moving into riskier assets. This, he said, had spawned a bigger problem for Corporate America.

‘Because BB, B, and in some cases CCC rated companies have been able to borrow at less than 5%, a host of zombie and future zombie corporations now roam the real economy.’

‘Schumpeter’s “creative destruction” – the supposed heart of capitalistic progress – has been neutered. The old remains in place, and new investment is stifled,’ he said.

‘And too, because of low interest rates, high quality investment grade corporations have borrowed hundreds of billions of dollars, but instead of deploying the funds into the real economy, they have used the proceeds for stock buybacks.’

Continuing his health analogy, Gross said the concept of ‘feeding a fever’ through low interest rates was failing badly. ‘Low interest rates may not cure a fever – they may in fact raise a patient’s temperature to life threatening status.’

- Bill Gross: zombie companies now roaming the real economy, CityWireGlobal.com, July 31, 2015.

本文僅代表作者本人觀點，與本網立場無關。歡迎大家討論學術問題，尊重他人，禁止人身攻擊和發布一切違反國家現行法律法規的內容。

About the author:

Zhang Xin is Trainer at chinadaily.com.cn. He has been with China Daily since 1988, when he graduated from Beijing Foreign Studies University. Write him at: [email protected], or raise a question for potential use in a future column.

（作者：張欣 編輯：丹妮）