The borrowings of companies in China are higher compared with their counterparts in the United States. The second largest economy is now leading the corporate debt markets with $14.2 trillion in borrowings as of the end of 2013, according to the June 15 report from Standard & Poor.
China’s corporate borrowings have now overtaken every country in the world including the United States with $13.1 trillion in corporate liabilities. Standard & Poor’s estimated that the needs of issuers in China will increase to $20 trillion by the end of 2018. That amount represents almost one-third of the $60 trillion in projected global business borrowing.
Corporate debt: Asia-Pacific borrowings will exceed North America and Europe
According the S&P, the borrowings of countries in the Asia-Pacific region will exceed both Europe and North America by 2016. China and neighboring countries will broaden their lead as the largest group of corporate borrowers worldwide. The report also indicated that bonds (BCOR) will become a more significant source of financing as opposed to loans. Bonds will increase 3.5% or nearly $3.1 trillion over the next couple of years.
China now has more outstanding corporate debt than any other country, having surpassed the U.S. last year, 12 months sooner than expected, S&P said.
Jayan Dhru, global head of corporate ratings at S&P, said, “Higher risk for China’s borrowers mean higher risk for the world. The U.S. continues on the path to economic recovery while the euro zone struggles with marginal growth, but the bottom line is that this is a China story.”
Data compiled by Bloomberg showed that borrowers from China and Hong Kong sold $52.3 billion of dollar-denominated securities this year. The amount is equivalent to around 55% of total sales in the region outside Japan.
Asia’s largest U.S. currency note issuer, China Petrochemical Corp, is seeking $6 billion of funds from international investors as of December 31st. China National Offshore Oil Corp, the biggest oil and gas company in the country, raised $4 billion from selling three-year, ten-year and 30-year securities on April 23rd of this year.
Simon Ip, head of markets and investment solutions at Credit Agricole SA (EPA:ACA) (OTCMKTS:CRARY) in Singapore, commented, “The amount of financing needs is big compared with what we’ve seen in the last few years” from Chinese companies. That may be partly due to their global expansion.”
According to Bloomberg, the total amount of syndicated loans in Asia-Pacific excluding Japan is $179 billion in 2014, higher than the $168.5 billion total syndicated loans recorded in the same period a year earlier.
S&P said China has more outstanding corporate debt compared with any other country. China surpassed the United States last year, 12 months earlier than anticipated.
Chinese companies’ cash flow leverage deteriorates
S&P noted that the cash flow leverage of Chinese companies was better than its peers around the world in 2009, but their situation has deteriorated more recently. S&P compared corporations in China with more than 8,500 listed companies worldwide.
S&P said the corporate issuers in China represent approximately 30% of the global corporate debt. One quarter to one-third of its corporate borrowings comes from the country’s shadow banking sector, which means as much as 10% of global corporate debt ($4 trillion to $5 trillion) is exposed to the risk of a contraction in the informal banking sector of China.