The disposal method and approach of Chinese-style “zombies” are not only related to the healthy development of China’s economy, but also an important content of the sustainable development of China’s economy in the new era. This paper uses the Chinese Industrial Enterprise Database to explore whether Chinese-style “zombies” can recover, and whether capacity compression can promote the recovery of “zombies”. This paper considers the feature of Chinese-style “zombies”, which combines government subsidies and credit subsidies, and combines the CHK method and the over-borrowing method to identify Chinese-style “zombies”. In order to avoid the misidentification of “zombies” to the greatest extent, this paper uses the more rigorous standard in academia to determine the firms that meet the measurement standard of “suspected zombies” in two consecutive periods as “zombies”. Results show that Chinese-style “zombies” are widely distributed, and have a high proportion, high leverage and low productivity. Similarly, based on the strictest identification criteria, a “zombie” can be recognized as recovered if it returns to a normal firm in the current year and all subsequent years. The average annual recovery of more than 20% of the “zombies” shows that these firms can be rejuvenated if appropriate measures are taken. We also find that the fixed assets cleanup and downsizing can significantly promote the recovery of “zombies” by increasing the level of firm productivity. The empirical results show robust conclusions when using different identification standards of “zombies”, different resurrection standards of “zombies” and different fixed effects in the regression. When instrumental variables are used to solve any possible endogenous problem, the empirical results above are still robust. However, in the absence of improvement in firm efficiency, the increase in R&D investment will only further increase the cost burden on “zombies”, and have little effect on the recovery. In addition, the improvement of market environment and the reduction of government intervention will inhibit the formation and have a positive effect on the promotion of the recovery of “zombies”. Therefore, the most important thing in the current governance of “zombies” is to combine specific measures with the improvement of the viability of firms, so as to realize cost reduction and efficiency improvement. At the same time, it is necessary to improve the disposal mechanism on institutional “zombies” and the market-based institutional environment, optimize industrial policies, and establish a long-term mechanism for the disposal of “zombies”.