Asian zombie firms export disinflation via supply chains
Proliferating zombie firms in ten Asian emerging economies reduce domestic growth and export disinflation to advanced economies through global supply chains. A Bank for International Settlements study analyzes firm-bank linked data from 2005 to 2021.
Weak banks sustain distressed borrowers
The proportion of non-viable zombie companies across ten Asian emerging market economies grew between 2005 and 2021, sustained by loan forbearance from undercapitalized domestic lenders.
At the national level, the survival of these distressed enterprises impairs overall corporate performance, crowds out investment by solvent businesses, and lowers both inflation and gross domestic product growth.
Prolonged resource misallocation steadily weakens domestic bank balance sheets.
In contrast, foreign banking groups remain largely shielded from credit distress, as international bank-lending exposures show no measurable macroeconomic fallout in creditor countries.
Supply chains transmit cross-border drag
Spillovers from Asian zombie firms transmit to advanced economies primarily through global value chains rather than cross-border financial contagion.
Advanced economies with heavy trade exposure to Asian emerging markets experience lower domestic inflation and reduced growth via cheaper intermediate goods imports.
By comparing trade and bank lending channels, the researchers show that trade-weighted linkages drive international disinflation, while direct cross-border bank credit generates no parallel macroeconomic effects.
Misallocation disguised as cheap goods
Cheap imports from emerging Asia carry hidden costs when anchored in subsidized corporate distress.
Advanced economy central banks risk confusing these supply-chain distortions with sustainable productivity gains.
Tolerating zombie firms ultimately exports lower growth across borders.