These enterprises have partially or fully stopped production, have suffered losses for years, are already insolvent, and mainly rely on government subsidies and bank loans to linger on.
And they are mostly SOEs or some large private enterprises, and because of their large size they play a big role in absorbing local employment. Local governments usually offer them fiscal subsidies in the fear that their closures will give rise to large-scale unemployment.
The most fundamental reason for the formation of zombie enterprises is government intervention in the market.
The zombie enterprises are mainly in the steel, coal, power, metallurgy, real estate and csectors, which have been largely affected by the government's policy regulations.
When the country's economy is weak, the government usually works out some stimulus measures, leading to a huge increase in demand for upstream industries. But when the economy shows signs of overheating, the government suspends subsidies, exposing the zombie enterprises.
These enterprises are the products of market distortion and the improper protection they get from local governments continues to increase the harm they can cause to the economy. Thus their disposal must be free from the interference of local governments.