Zombie Firms And Overcapacity

In recent years,China's economic growth has gradually slowed down.Demand has been weak over last six years even a series of stimulus policies.The growth rate of consumption and investment has been declining year by year.The growth rate of proportion of non-government investment in total investment has slowed down or even decreased.Overcapicity contributes a lot to these phenomenons.In fact,overcapacity has always been a "chronic illness" in China's economic development and recently performs as "structural overcapacity".Since 2015,the Central Government has continuously emphasized that improving the supply-side structure should focus on the key point—"zombie enterprise",emphasizing eliminating the backward production capacity and making room and resources for the development of high-tech and high-end production capacity.Zombie business is an important factor leading to overcapacity problems.Thus,it is necessary to find out the relationship between zombie businesses and overcapacity so that we can optimize the strategy of handling zombie businesses and solve the problem of overcapacity.In fact,zombie firms problem has been the hit topic recently,but scholars mainly focus on the identification methods and the reasons for zombie firms instead of the impacts it makes,let alone the relationship between zombie firms and overcapacity.To reveal the relationship between zombie firm and overcapacity,based on the industrial enterprise database from 1998 to 2007,this paper analyzes the relationship between zombie enterprises and overcapacity.We have separately verified the causes of zombie businesses and overcapacity,and explained the mechanism by which zombie firm triggered overcapacity.The empirical results show that:(1)The over-employee behavior of zombie companies is one of the most important reasons of overcapacity.We find that zombie firms over employee than non-zombie firm with 9 units over-employees more than non-zombies.This over-employee behavior partcially mediates the effects of relationship between zombie firms and overcapacity.(2)Another causes of overcapacity is the low asset utilization.Our study suggests that low asset utilization intead of over investment lead to the zombie firm's overcapacity.Zombie firms have weak investment or even not enough investment.Also,zombie firms suffer low asset utilization,and this particially mediates the relationship between zombie firms and overcapacity.We find that capacity utilization decrease 0.002 if asset utilizaiton decrease 1 unit.(3)Low total factor productivity is the third reason for zombie firms' overcapacity.Lower total factor productivity particially mediates the effect which zombie firms make on overcapacity.What's more,along with over-employee and low asset utilization,total factor productivity totally mediate the relationship between zombie firms and overcapacity.Relevant data suggests that capacity utilization decrease 0.002 if asset utilizaiton decrease 1 unit.(4)Government intervention is relevant to zombie firms.Economy-advanced,of great marketization,the east part of China display a lower zombie firm proportion.Besides,zombie firms proporrtion in foreign-controlled and individual-controlled companies are much more lower than the state-controlled and community-controlled ones,which suffer from greater government intervention.In this paper,we reveal the link between "zombie firm-overcapacity",enriching the theoretical analysis and empirical research in this direction,the conclusion of the study can rationalize the relationship between the government and the market under the new normal,to provide reference for further deepening supply-side reform,with a certain theory and the real meaning.