Teikoku Databank announced today that the number of companies that are unable to pay their interest out of their core business profits and are extending their lives by asking financial institutions to change terms or receiving government support, so-called “zombie companies”, has rapidly increased to 250,000, approaching the all-time high.
This is probably because excessive subsidies were provided during the coronavirus pandemic, and companies that would otherwise have gone bankrupt were able to survive on the subsidies. Although they have incurred a lot of debt, they will not be able to pay the interest if their business performance does not improve. Normally, a company goes bankrupt when it can no longer pay interest, but it extends its life by taking out other loans and continuing to pay interest.
In response to this, critics often say in unison that “zombie companies should stop extending their lives and be weeded out.” Theoretically, that would be correct. On the other hand, companies have employees who have families, cannot easily make the decision to close down.
It is clear that mere subsidies and emergency loans alone will not provide a fundamental solution. It is obvious that there is an urgent need to revitalize the economy through significant tax cuts and fundamental institutional reforms.
