China - Economic Data & News 11 (Mar 15 - Jul 15)

Re: China - Economic Data & News 11 (Mar 15 - Dec 15)

Postby winston » Fri Jul 17, 2015 6:26 am

S&P warns of growing China debt monster

China's corporate debt market, already the largest in the world, has continued to worsen as the economy slows, and defaults are expected to increase, rating agency Standard & Poor's said yesterday.

Sovereign support could be forthcoming in the case of state-owned enterprises, but its scope and effectiveness was uncertain, S&P said.

"The Chinese central government's `capitalism with Chinese characteristics' has led to the corporate sector [including state-owned enterprises] incurring more debt than the sovereign," the agency said in a report.

It noted that the corporate debt burden is eight times government debt.

China's corporate debt-to-GDP rose to 160 percent to US$16.1 trillion (HK$125.5 trillion) in 2014, twice that of the United States, from about 120 percent in 2013.

And it is expected to worsen as corporate debt would outpace GDP growth in coming years. Corporate debt would further rise to US$28.5 trillion in 2019 and could destabilize financial markets.

"Rapid debt growth, opacity of risk and pricing [partly due to bank loans dominating funding], very high debt to GDP, and the moral hazard risk of the Chinese market make it a high risk to credit," S&P said.

Even though the credit cycle was slowing in China, credit growth remained faster than most nations. S&P estimates that globally, companies may seek up to US$57 trillion over 2015-19, with China consuming US$23 trillion.

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