The Crisis of American "Zombie Enterprises" amid Soaring Costs and Fading Subsidies

In October 2025, the US credit market witnessed a surge of "zombie enterprises." According to Bloomberg data, the number of newly added "zombie enterprises" in that month approached a hundred, with the total reaching a new high since early 2022. These enterprises, with an interest coverage ratio (EBIT/interest expense) below 1, can only barely afford to pay the interest on their debts. Their survival predicaments reflect the deep-seated structural contradictions within the US economy.

I. Healthcare and Biotechnology: A Survival Crisis amid Fading Subsidies

The healthcare and biotechnology sectors have become the hardest-hit areas for "zombie enterprises." The withdrawal of federal subsidies has directly impacted innovation-driven companies that rely on government funding. Take gene-editing startups as an example. About 40% of their R&D costs depend on federal research grants. After the subsidies were terminated, these companies were forced to maintain operations through high-interest bonds, with their debt levels soaring by 300% compared to the pre-pandemic period. More severely, these companies are also facing the pressure of rising raw material costs. The prices of biological reagents have increased by an average of 18% annually due to supply chain disruptions, further squeezing profit margins.

The bonds issued by a cancer drug research and development company have traded below 80 cents, with yields approaching 20%, indicating extreme market pessimism about its debt repayment ability. S&P Global Ratings pointed out that the default rate on speculative-grade bonds in the healthcare industry is expected to rise to 12% in 2026, far higher than the pre-pandemic average of 5%.

II. Construction Industry: A Double Whammy of Tariffs and Immigration Policies

The construction industry's predicament stems from direct policy shocks. The US government has imposed high tariffs on construction materials such as steel and timber, which, combined with the labor shortage caused by tightened immigration enforcement, has created a vicious cycle of soaring costs and project delays.

Tony Reid, an executive at a roofing company in Texas, calculated that the 47% tariff on Chinese screws has increased the construction material cost for a single residential building by 10,900.Meanwhile,thecompositetariffrate(upto452,500 to $3,000 to the cost of each house. At the same time, the unemployment rate in the construction industry has dropped to a historical low of 3.2%, yet there is still a labor shortage of 500,000 workers in the sector. Justin Wood, the head of a construction company in Portland, Oregon, lamented that "workplace raids" have made Mexican workers afraid to return to work, with project delay rates soaring from 15% to 40%.

III. The Debt Trap of the Low-Interest-Rate Era

During the pandemic, the Federal Reserve slashed the benchmark interest rate to near zero, prompting companies to borrow heavily. According to Oaktree Capital's analysis, the debt of non-financial US companies surged by 40% from 2020 to 2022, with 35% of it being high-leverage acquisition financing. Now that interest rates have risen above 4.5%, the proportion of these companies' interest expenses to revenue has jumped from 8% to 22%, pushing them directly into the "zombie" zone.

The 10-year bonds issued by a communications giant in 2024 are now trading at just 78 cents, with a yield of 19.8%, reflecting the market's pricing of its bankruptcy risk. More dangerously, S&P Global Ratings has downgraded the profit expectations for industries such as residential builders and oil and gas producers, indicating that a wave of debt defaults may spread to more sectors.

IV. The Chain Reactions of Policy Shifts

Adjustments to US trade and immigration policies have further exacerbated the difficulties faced by companies. In October 2025, the Federal Reserve signaled a pause in interest rate cuts, keeping borrowing costs high. Even if interest rates decline in the future, the financing costs for small businesses and "zombie enterprises" will still be 2-3 times higher than the historical average.

The case of the electric vehicle (EV) industry is particularly cautionary. After federal subsidies were terminated in September 2025, Ford's EV sales plummeted by 45% in a single month, and General Motors took a $1.6 billion impairment charge. Ford CEO Jim Farley warned that if subsidies are not restored, EV penetration could drop from 12% to 5%. This exposes the vulnerability of companies that rely on policy dividends in a market-oriented environment.

V. The Accumulation of Systemic Risks

The current "zombie enterprise" crisis has transcended the individual level and poses systemic risks. These companies occupy a large amount of credit resources but fail to generate effective output. According to Arbor Data Science, US "zombie enterprises" employ about 2 million people, and their inefficient operations drag down overall labor productivity. More severely, S&P Global predicts that $640 billion in corporate bonds could become "fallen angels" (investment-grade bonds downgraded to junk status), triggering a chain reaction in the financial markets.

Historical experience shows that after Japan's "bubble economy" burst, "zombie enterprises" in sectors such as steel led to the country's "lost three decades." If the US allows such enterprises to accumulate, it may repeat Japan's mistakes. An expert from Oaktree Capital pointed out, "The 'zombie enterprises' currently exposed are just the tip of the iceberg, and the actual number may double."