Wall Street Journal @WSJ
China has overtaken the U.S. as the world's largest corporate debt issuer. http://on.wsj.com/1ytPT7Z
China Tops U.S. in Corporate Debt Issuance
SandP Warns Slowing Economy, Weaker Financial Conditions Pose Risks
SHANGHAI—China has overtaken the U.S. as the world's largest issuer of corporate debt, but a slowing Chinese economy and the weakened financial health of its companies are creating risks globally, according to Standard & Poor's Ratings Services.
The assessment by the U.S. rating firm echoes
increasing concerns over the health of China's financial system, as stresses rise among struggling property developers and cash-strapped local governments.
Adding to the worries is the fact that Beijing has started allowing some small, private borrowers to default on loans and bonds, suggesting a reduced willingness by the state to bail out troubled firms.
increasing concerns over the health of China's financial system, as stresses rise among struggling property developers and cash-strapped local governments.
Adding to the worries is the fact that Beijing has started allowing some small, private borrowers to default on loans and bonds, suggesting a reduced willingness by the state to bail out troubled firms.
In a report released on Monday, S&P said it expects companies around the world to seek up to $60 trillion in new debt and refinancing between 2014 and 2018, an increase from an estimated $53 trillion for the 2013-2017 period. Asian-Pacific corporate issuers will likely account for half of the $60 trillion, and more than half of the $72 trillion in debt the ratings company projects will be outstanding in 2018.
China now has more corporate debt outstanding than any other country, having surpassed the U.S. in 2013, a year sooner than S&P originally expected, the rating firm said.
Although Beijing has tried to rein in credit growth to reshape an economy that has depended on big investments, such as infrastructure projects, an abundant supply of cash at Chinese banks and large capital expenditures by state-owned enterprises have allowed corporate debt to build up quickly in recent years, it said.
S&P said it estimates corporate debt outstanding in China was $14.2 trillion at the end of 2013, compared with $13.1 trillion in the U.S. China's new debt and refinancing needs are expected to reach $20.4 trillion in 2018, around one-third of the world's total at that time, while the U.S.'s will likely be about $14 trillion.
"The combination of weakened financial profiles, slower economic growth, tighter access to borrowing, and higher interest rates pose a significant challenge to China's corporate borrowers, especially the small-to-medium enterprises," SandP said.
"As the world's second-largest economy, any significant reverse for China's corporate sector could quickly spread to other countries."
Citing findings of a study it conducted comparing more than 8,500 listed Chinese and foreign companies, S&P said that while China's companies started 2009 better off than their global peers, their cash flow and leverage have worsened in subsequent years. Their ability to repay their debt has weakened, and the property and steel sectors are of particular concern, according to S&P.
Worries about the risk in China's corporate debt have intensified in the past year. Economic growth has slowed and borrowing costs have spiked periodically as Beijing sought to discourage lending to industries saddled with overcapacity and discipline banks that have lent aggressively to riskier borrowers.
Earlier this year, China allowed a Shanghai-based solar-equipment maker to default on a bond traded in the mainland. It was the first time Beijing allowed a domestically issued corporate bond to default.
"We expect more defaults in the steel sector. An external spillover from this has been the more than 25% fall in iron-ore prices this year," S&P said.
Writer: Shen Hong at hong.shen@wsj.com
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