China's debt problem explained. (2024)

The health of Chinese companies

China is taking on more debt, but the real concern is the rate at which its companies are borrowing. Since 2008, non-financial sector debt-to-GDP has risen at breakneck speed. Encouraged by government calls to support economic growth, companies gorged on cheap credit. Analysts estimate that two-thirds of corporate debt is in the hands of China's sprawling state-owned enterprises, many of which are unprofitable and inefficient.

Chinese listed companies

As borrowing increases and earnings flatline, many more Chinese companies are struggling to keep up with their repayments. A snapshot of Chinese corporate debt compared to earnings, as represented by a group of 1189 mid- to large-cap companies who reported net debt in 2008 and 2016, paints a bleak picture. The chart below analyses net debt/EBITDA, a ratio used to show how many years it would take for a company to pay back its debt if current metrics remained constant. The number of companies with a ratio between 0 and 5, a measure usually considered healthy, has fallen by 31.7%. The number of companies making a loss or companies with an unhealthy ratio above 5 has risen.

Number of companies

Listed in Hong Kong

Chinese companies listed in Hong Kong are generally considered to be among China's healthiest due to greater financial disclosure rules. The chart below looks at a group of 93 companies with listings dating back to 2011.

By December 2016, the number of companies with earnings at least three times the interest cover on their debt, a measure generally considered to be healthy, shrank from 66 to 49.

China's debt problem explained. (1)

Number of companies

China's debt problem explained. (2024)
Top Articles
Latest Posts
Article information

Author: Domingo Moore

Last Updated:

Views: 6091

Rating: 4.2 / 5 (73 voted)

Reviews: 80% of readers found this page helpful

Author information

Name: Domingo Moore

Birthday: 1997-05-20

Address: 6485 Kohler Route, Antonioton, VT 77375-0299

Phone: +3213869077934

Job: Sales Analyst

Hobby: Kayaking, Roller skating, Cabaret, Rugby, Homebrewing, Creative writing, amateur radio

Introduction: My name is Domingo Moore, I am a attractive, gorgeous, funny, jolly, spotless, nice, fantastic person who loves writing and wants to share my knowledge and understanding with you.