The International Monetary Fund warned on the 13th that Asian economies, including South Korea, are nurturing a growing pool of "zombie companies" that cannot cover their interest payments out of earnings.
In a special section of its Global Financial Stability Report released that day, IMF researchers examined the risks that corporate "zombification" poses to banks with thin capital buffers, the Financial Times reported.
Zombie companies account for 21.4% of outstanding corporate debt across 10 Asian economies, including China, India, Thailand, Indonesia and South Korea, the report said. That share was below 10% in 2008, meaning it has roughly doubled since then. The IMF defines a zombie company as one that has failed to cover its interest payments with earnings for at least three years.
Corporate credit in Asia averaged 107% of gross domestic product at the end of 2025, up from 81% before the 2007 global financial crisis, according to the IMF. That exceeds the current global average of 93% and the emerging-market average of 99%. Rising corporate debt is increasingly concentrated in companies that are less and less able to repay it, the IMF said.
Zombification Most Severe in China
Analysts have widely cited the survival of thousands of economically unviable companies as a root cause of Japan's prolonged stagnation since the 1990s, known as the "lost decades," and of the severe bad-loan crisis of the early 2000s.
The latest IMF research did not include a current figure for Japan's share of zombie companies. The IMF did not single out risks in any particular country, but recent analysis suggests corporate zombification is advancing rapidly in China, the Financial Times reported.
Citing a Natixis study of Chinese listed companies, the newspaper said the share of firms unable to cover interest payments with earnings rose to 12.5% in June 2026 from about 6% in 2019. That is roughly double the global average of 6.5%. The global figure fluctuated slightly during the pandemic but has held broadly steady since 2018, according to the Financial Times.
A report by the Federal Reserve Bank of Dallas said China's current experience resembles Japan's in the 1980s and 1990s in several respects, noting that a sharp rise in private debt, supported in part by domestic savings, was followed by zombie lending.
Elsewhere, the IMF said the share of zombie companies is relatively low. In Latin America, Europe and Africa, about one in eight companies was a zombie on average as of 2024, and those firms were concentrated among a small number of heavy borrowers.