Summary of Assessing China’s Corporate Sector Vulnerabilities

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Chinese firms have ramped up borrowing to finance growth in recent years, raising concerns about the impact of increased debt on the country’s economic progress and financial stability. According to Standard & Poor’s, China overtook the United States to become the world’s biggest corporate borrower in 2013. At the same time, the corporate cash flow to service this growing burden has weakened. Are China’s companies facing a downfall if interest rates rise or real estate values decline? International Monetary Fund economists Mali Chivakul and W. Raphael Lam offer an authoritative answer to this conundrum. getAbstract recommends their comprehensive report to economists, analysts, executives and investors with interests in China’s financial future.

In this summary, you will learn

  • Why China’s private companies and state-owned enterprises (SOEs) have increasingly borrowed from banks and nonbanks since 2008,
  • What factors characterize this debt, and
  • How a rise in interest rates and a decline in real estate values would affect China’s corporations.
 

About the Authors

Mali Chivakul is a senior economist at the International Monetary Fund. W. Raphael Lam is an economist and resident representative at the IMF’s Beijing office.

 

Summary

Prior to the global financial crisis, China’s private firms and state-owned enterprises (SOEs) typically funded their businesses through retained earnings. Since 2008, however, when the crisis choked profitability, companies have increasingly borrowed from banks and from nonbank sources via trust loans...

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