Asia corporate debt strain deepens as IMF warns on rise of zombie companies

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Asia corporate debt strain warning

Highlights

IMF's Global Financial Stability Report shows zombie companies now account for 21.4 per cent of outstanding corporate debt in 10 Asian economies, up from under 10 per cent in 2008.
Corporate credit in Asia is projected to reach 107 per cent of GDP by end-2025, exceeding the global average of 93 per cent and the emerging market average of 99 per cent.
Natixis reports the share of listed Chinese companies unable to cover interest rises to 12.5 per cent by June 2026, doubling the global rate of 6.5 per cent.

IMF data show debt concentration across Asia

As reported by Financial Times, citing the IMF in its Global Financial Stability Report published on Tuesday, zombie companies account for 21.4 per cent of outstanding corporate debt across 10 Asian economies, up from under 10 per cent in 2008. The lender defines zombie companies as corporations whose earnings have not covered interest payments for at least three years, with survival in many cases sustained by bank forbearance.

The IMF says corporate credit in Asia averages 107 per cent of GDP at the end of 2025, compared with 81 per cent before the global financial crisis in 2007. That level stands above a current global average of 93 per cent and 99 per cent among emerging market economies.

The report says this rising share of corporate debt is increasingly concentrated in firms that cannot service it. If the stock of zombie debt in the 10 Asian economies surveyed had been subjected to hazard and recovery rates typical of groups in sustained distress, almost 23 per cent of that debt would have been written off or restructured as of 2025.

China trends and banking risks draw focus

Although the IMF does not single out individual country risks, recent analysis points to a rapid build-up of corporate zombification in China. Natixis says the share of listed Chinese companies whose revenue is insufficient to cover interest payments rises to 12.5 per cent in June 2026 from about 6 per cent in 2019, roughly double the global rate of 6.5 per cent.

The study says state policies supporting advanced industries such as semiconductors help rapid expansion but not profitability. Separate data from China's National Bureau of Statistics show that 29.33 per cent of companies with annual operating revenue of at least Rmb20mn are lossmaking in August, up from 20.8 per cent in the same month five years earlier.

The IMF says undercapitalised banks tend to be larger producers of zombie companies because rolling over weak loans preserves reported capital ratios while delaying losses. In Asia, banks with tier one capital below the median of domestic peers have 16 per cent of their loans tied to zombie firms, compared with 12 per cent for better-capitalised banks.

The findings echo concerns raised in a December report by the Federal Reserve Bank of Dallas, which identifies signs of zombie lending in China. The IMF adds that zombie-company shares remain relatively small in Latin America, Europe and Africa, where in 2024 only about one in eight groups on average falls into that category and exposures are concentrated among a handful of large borrowers.

Our earlier coverage of New World Development’s funding strain described how the Hong Kong developer came under pressure after delaying its earnings release and missing an analyst briefing. We noted that rent relief tied to its 11 Skies airport project offered short-term liquidity and eased immediate debt-servicing stress, highlighting broader balance-sheet strains across parts of Hong Kong’s real estate sector.

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