what they are and how they survive with government help

Zombie companies in Japan abound. But don’t think that to work on it you have to be undead or something. And they also don’t specialize in selling products to the undead.

In fact, depending on the point of view, mainly economic, these companies can represent big holes for the country’s economy, being even worse than a scenario in which the living dead worked and paid their taxes.

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So, learn more about zombie companies and how they have grown in Japan in recent years, mainly due to the coronavirus pandemic.

zombie companies in japan

Companies that continue to operate despite being in a state of bankruptcy, such as not making required payments, being insolvent due to accumulated losses, or having excessive debt and repeatedly rescheduling payments, are known as “zombie companies”. The term is widely used in the US and has also become popular in Japan.

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The Bank for International Settlements defines zombie companies as those that are at least 10 years old and have an interest coverage ratio of less than one for at least three consecutive years. Based on these standards, Teikoku Databank calculated that the rate of zombie companies in Japan in fiscal 2020 was 11.3%, or 165,000. Therefore, it can be said that there are more than 150,000 companies in Japan that are practically dead.

After the onset of the global financial crisis in 2008, many companies were able to continue operating due to the introduction of government financial aids in 2009, which meant that in 2011 the number of zombie companies rose to 273,000. Although they gradually declined after that, reaching around 140,000 as of 2016, an increase of nearly 20,000 companies was seen from 2019 to 2020, when the COVID-19 pandemic began.


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Zombie companies in Japan during the pandemic

In fiscal 2020, approximately 70% of zombie companies had 20 or fewer employees, and in total, nearly 90% had 50 or fewer. Construction was the most common industry for these companies with 34.3%, followed by industry and wholesale. This is a high number of people who are employed in these places. Therefore, simply doing away with them also means leaving these people unemployed, which is why the Japanese government has a certain amount of care with these companies.

Of the 11,562 respondents to the February 2022 Teikoku Databank survey that analyzed companies’ attitudes toward financial support related to COVID-19, 417 were zombie companies. While 52.6% of responding companies generally received a COVID-19-related loan, this increased to 79.6% for zombie companies alone.

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When asked about the repayment forecast for COVID-19 loans, 9.0% of all companies were “concerned about payments”, but this increased to 15.5% for zombie companies alone. Therefore, we can say that this is not a very friendly scenario for debt repayment and that zombie companies in Japan can bring future problems to the country’s economy.

Source: Nippon.com.

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