Welcome to ‘zombie land’ and China’s economic crisis
Beijing ‘is saving jobs at all costs – even if it means artificially keeping companies alive’
They’ve back and stalking China’s business landscape. Zombie companies have returned with a vengeance, rising from the dead to prop unemployment numbers fudged by the National Bureau of Statistics.
As the ruling Communist Party grapples with domestic deflation and anemic consumer spending at home, tariffs and trade war winds swirl around the economy. It comes at a time when manufacturing overcapacity is squeezing corporate profits.
Against this backdrop, Beijing is determined to keep unemployment in check by “accepting far-reaching economic distortions.” Currently, the jobless rate is running at 5.2%, according to official, doctored data.
“China is saving jobs at all costs – even if it means artificially keeping zombie companies alive. The consequences for the economy and the global market are serious,” China Business Spotlight reported earlier this month.
“Many companies can only continue to produce with government aid and intervention. In this way, economic efficiency is sacrificed in order to maintain employment and social peace,” the Substack newsletter pointed out.
Economic growth has been hobbled by ‘zombie companies.’
Tianlei Huang, of the Peterson Institute for International Economics
Data trap:
- Manufacturing activity in the world’s second-largest economy again shrank in June, the National Bureau of Statistics confirmed.
- The official purchasing managers’ index or PMI came in at 49.7, dipping under the 50-mark separating growth from contraction.
Delve deeper: Manufacturing confidence in China has quickly evaporated during the past year amid trade tensions with the United States and the European Union. The Trump administration’s ‘tariffs shock’ has severely rattled big business.
Between the lines: “We remain cautious about the outlook, as weaker export growth and a fading fiscal tailwind is likely to slow activity in the second half of the year,” Zichun Huang, an economist at Capital Economics, told CNBC news.
Big picture: Still, this will only accelerate the march of the zombies, which is reminiscent of the 2019 outbreak before the Covid-19 pandemic wreaked havoc. In the decade leading up to that, “China’s non-financial corporate debt grew to nearly $20 trillion.”
Bottom line: “Economic growth has been hobbled by ‘zombie companies’ because they are kept alive only by bank loans and government subsidies,” Tianlei Huang, of the Peterson Institute for International Economics, wrote in 2019.
China Factor comment: Fast forward six years and the curse is back. Even crucial “vanishing data,” can not hide the challenges facing Beijing in the foreseeable future.