China Surpasses U.S. as Largest Corporate Debt Issuer

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Submitted by William Briat as part of our contributors program.

China Surpasses U.S. as Largest Corporate Debt Issuer

China has officially overtaken United States as the world’s biggest issuer of corporate debt according to a report released on Monday by Standard & Poor’s.

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Is this the sign of end of America in global domination? China’s nonfinancial companies had total outstanding bank loans and bonds worth $14.2 trillion where else United States had $13.1 trillion at the end of last year. It is estimated that China’s debt level will cross $20 trillion by the end of 2018 which would make it the largest one.

Standard & Poor’s estimated that 1/4 to 1/3 of the China’s current corporate debt is sourced from shadow banking sector.

“This means that as much as 10 percent of global corporate debt is exposed to the risk of a contraction in China’s informal banking sector,” S.&P.analysts wrote in their report. said, estimating this at $4 trillion to $5 trillion. “With China’s economy likely to grow at a nominal 10 percent per year over the next five years, this amount can only increase.”

“China’s large and still-expanding contribution to global corporate debt, the higher financial risk is causing overall corporate risk to increase globally,” the agency said.

“As the world’s second-largest national economy, any significant reverse for China’s corporate sector could quickly spread to other countries.”

Although China significantly avoided 2008 financial meltdown by going on a tremendous credit binge, signs of wear and tear in Chinese credit market have started and widely noticed: last year one of the largest Chinese steelmakers Shanxi Haixin Iron and Steel Group Co., Ltd. also failed to repay some debt.

The S&P analysts write: “Our findings confirm that while China’s corporate companies started 2009 better off than global peers, their cash flow and leverage have worsened in subsequent years.”

Conclusion: China’s share of the global corporate debt market grows ever larger.