"Zombie company" is a media term for a company that needs bailouts in order to operate, or an indebted company that is able to repay the interest on its debts but not repay the principal.
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Description
Zombie companies are indebted businesses that, although generating cash, after covering running costs, fixed costs (wages, rates, rent) they only have enough funds to service the interest on their loans, but not the debt itself. As such they generally depend on banks (creditors) for their continued existence, effectively putting them on never-ending life support.
History
The term "Zombie Company" was applied to Japanese firms supported by Japanese banks during the period known as the "Lost Decade" after the collapse of the Japanese asset price bubble in c.1990. Japanese banks continued to support weak or failing firms. The retailer Daiei is an example of a large company that expanded greatly during the period leading to the 1990 crash, and under different circumstances would have been expected to have entered receivership or bankruptcy. The finance minister Takeo Hiranuma was reported as describing the 96,000 employee firm as being 'too big to fail'.
The term regained popularity in the media during 2008 for companies receiving bailouts from the U.S. Troubled Asset Relief Program (TARP).
By 2016 following economic downturn in China (see also 2015–16 Chinese stock market crash) Chinese industrial companies (steel, aluminium, paper etc) had developed gross overproduction capacity problems, with overcapacity rising from 0% in 2007 to an average of 13% by 2015, with figures higher than 30% in some industries (cement, steel in 2014). At the 2016 National People's Congress the country's government recognised the issue of the 'Zombie Enterprises' and announced that it was to close or reorganise many state owned (public) industrial companies by 2020. In coal and steel industries resultant loss of work was expected to result in 1.8 million redundancies (15% of workforce), with total redundancies estimated to be up to 6 million workers.