Title: Zombie Firms and the Stimulating Policies: Evidence from China

Speaker: Wei Li, Assistant Professor, Beihang University

Time: December 28h, 2017 13:30-15:00

Venue: Conference Room 106B, Zhonghui Building

Abstract:

This paper documents the evidence suggesting a trade-off between misallocation and stimulating economic policies. China implemented an enormous monetary expansion for the post-2008 periods. It shows the number and the magnitude of undesirable zombie firms increased sharply since then. We find that these zombie firms are heavily indebted and are kept alive through continuous and distorted monetary and fiscal support. Based on the panel data from the China Manufacturing Census between 1998 and 2013, this paper provides new evidence regarding the persistence for a Chinese firm to be a zombie and provides estimates of zombie vs. non-zombie status transition matrix. Then, by looking into the different responses of zombie firms and non-zombie firms to identified monetary shocks in China, we study the effectiveness of

China's monetary policy per the presence of zombie firms. We find that: (1) a small fraction of zombies firms disproportionately benefit from expansionary monetary shocks and accommodate most of the intended effects of monetary easing; (2) a rise in the zombie share at the industry level is associated with lower credit access and investment rate for non-zombie firms, a larger TFP gap between zombie and non-zombie firms and less productivity-enhancing capital reallocation.