IMF warns Asian nations are creating bulk of world’s zombie groups

By the Editorial Team · Wednesday, October 14, 2026

The IMF has identified a significant rise in "zombie" companies across Asia, which now account for about 21.4 percent of outstanding corporate debt in major economies like China and India. This growing presence of unprofitable firms poses a systemic financial risk, with nearly a quarter of their distressed debt potentially requiring write-offs or restructuring by 2025.

The International Monetary Fund (IMF) has identified Asia as the primary source of so-called "zombie" companies—firms unable to cover their interest payments over an extended period—raising concerns about systemic financial risks in the region. According to the IMF’s latest Global Financial Stability Report, published on October 13, 2026, these distressed companies now hold a substantial portion of corporate debt across major Asian economies.

The analysis covers ten countries in Asia, including China, India, Thailand, Indonesia, and South Korea, where zombie firms constitute approximately 21.4 percent of outstanding corporate debt, a significant rise from less than 10 percent in 2008. Zombie companies are defined by the IMF as those whose earnings have failed to meet interest obligations for at least three consecutive years. Their continued operation often depends on financial leniency from banks, which increases the vulnerability of the broader financial system.

The report draws parallels to Japan’s experience during its "lost decades" starting in the 1990s, when a similar accumulation of unprofitable firms weighed on economic growth and contributed to a surge in non-performing loans in the early 2000s. However, the IMF’s current research does not include an updated assessment of Japan’s zombie companies.

Corporate credit in Asia has expanded markedly in recent years. By the end of 2025, corporate borrowing averaged 107 percent of GDP across the region, rising from 81 percent prior to the 2007 global financial crisis. This level surpasses the global average of 93 percent and the 99 percent average seen in emerging markets overall. The IMF warned that an increasing share of this borrowing is concentrated among firms unable to service their debt.

While the IMF report refrains from singling out particular countries, additional studies indicate rapid zombification in China. Analysts at Naxitis, led by Alicia García Herrero, chief economist for Asia Pacific and the Middle East, noted that the proportion of publicly listed Chinese companies failing to generate enough revenue to cover interest payments rose to 12.5 percent in June 2026, doubling from approximately 6 percent in 2019. This rate also surpasses the global average of 6.5 percent, which has remained relatively stable since 2018 despite pandemic-related fluctuations.

The Naxitis report attributes part of this trend to state policies supporting advanced industries, such as semiconductors, that have spurred growth but not necessarily profitability. Supporting this, China’s National Bureau of Statistics reported that 29.33 percent of companies with annual revenues exceeding 20 million renminbi ($3 million) operated at a loss in August 2026, an increase from 20.8 percent in the same month five years earlier.

The IMF’s Global Financial Stability Report cautions that if the distressed debt held by zombie firms in Asia were subjected to typical default and recovery rates, nearly 23 percent of it would need to be written off or restructured by 2025, highlighting the potential risks to financial stability in the region.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.