Cause and overhaul of zombie firms in Japan after the burst of the bubble economy and the enlightenment

JIANG Yujie1 CAI Daxian2

(1.School of Public Affairs, Chongqing University, Chongqing, China 400044)
(2.Faculty of Environment and Information Sciences, Yokohama National University, Yokohama, Japan 240850)

【Abstract】Zombie firms are not unique to China, but are the common issue and challenge that relevant economies in the world once confronted or are facing. In general, the government, financial institutions and firms themselves are responsible for the emergence and rapid increase of zombie firms in Japan after the burst of the bubble economy. Japan’s main measure of overhauling zombie firms was establishing two special institutions—Industrial Revitalization Corporation of Japan and Small and Medium Enterprise Revitalization Support Councils. China can draw experience from Japan’s measures to help zombie firms exit from the market smoothly or revitalize to be competitive again. The main aspects can be summarized as follows. The government should use integrated means to overhaul zombie firms effectively. Banks should control financing loans strictly to avoid continuous fund injection into zombie firms. Furthermore, a system for smooth exit from the market should be set up, and measures should be taken to promote bankruptcy of zombie firms in time. In addition, neutral agencies should be built to assist the government in overhauling zombie firms.

【Keywords】 Japan; zombie firms; Industrial Revitalization Corporation of Japan; Small and Medium Enterprise Revitalization Support Councils; exit mechanism;


【Funds】 Special Humanities and Social Sciences Development Project for Improvement of Scientific Research and Innovation Ability, Fundamental Research Funds for the Central Universities (2017CDJSK01XK07) Special Project of the Fundamental Research Funds for the Central Universities (0903005203534)

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(Translated by LING Feixia)


    [1]. ①The studies about zombie firms in Japan may originate from an article なぜ日本は流動性の罠から逃れられないのか , which was published by Professor Hoshi Takeo in 1990 on liquidity traps and non-performing loans of banks. [^Back]

    [2]. ② In the middle 1990s, housing finance enterprises’ non-performing assets reached JPY 8.1 trillion, including the non-performing debts of JPY 5.5 trillion from the agricultural associations. [^Back]

    [3]. ③ The Japanese government strictly controlled the market access threshold of financial institutions: preventing the bankruptcy of financial institutions in the market, while selecting the “ships” of the “convoy” through the government’s protection and assistance, so that all the “ships” of the “convoy” could catch up. [^Back]

    [4]. ④ In 2002, the total number of non-performing loans of all banks in Japan amounted to JPY 43.2 trillion. [^Back]

    [5]. ⑤ On August 18, 1992, the Ministry of Finance issued a document about the current operating guidelines of financial administration, stating clearly that although the burst of the bubble economy had a huge impact on financial institutions, Japan’s industries possessed strong international competitiveness, huge asset reserves and perfect institutional guarantees; therefore, although the financial institutions were affected and could not function properly, it would not cause great burdens on national economy, and they should not be too pessimistic but solve the problem calmly, conscientiously and diligently. [^Back]

    [6]. ① During World War II, in order to ensure the priority of military enterprises to obtain funds, Japan paired banks with all kinds of military enterprises to make them become the “main banks” of these enterprises; these banks were responsible for the supply of funds, and participated in the operation and management of the enterprises, so that the preliminary “main banking system” was developed. [^Back]

    [7]. ① According to the statistical data of Tokyo Shoko Research, among the 41 enterprises supported by the Industrial Revitalization Corporation of Japan, 30 enterprises disclosed capital status, of which 18 were large enterprises with assets of more than JPY 300 million, and 12 were medium enterprises with assets below JPY 300 million. [^Back]

    [8]. ① The deadline for the Industrial Revitalization Corporation of Japan to accept new restructuring projects was before March 2005 in principle, but, the deadline for submission of application materials of enterprises licensed by government ministers could be extended to September 2005. [^Back]

    [9]. ① For example, formulating financial target plans and establishing systems for efficient information exchange in enterprises. [^Back]

    [10]. ② For example, giving full play to enterprises’ competitive business, and reducing their purchase and personnel costs. [^Back]

    [11]. ③ For example, establishing a reasonable personnel evaluation system to improve the enthusiasm of employees. [^Back]


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This Article


CN: 22-1065/F

Vol 36, No. 04, Pages 46-57

July 2017


Article Outline


  • Introduction
  • 1 Bursting of Japan’s bubble economy and the rapid growth of zombie firms
  • 2 Reasons for the emergence and increase of zombie firms in Japan
  • 3 Measures to deal with zombie firms in Japan
  • 4 Enlightenment
  • Footnote