China Inc borrows $14 trillion, overtakes US as top corporate borrower-S&P

China Inc borrows $14 trillion, overtakes US as top corporate borrower-S&P

HONG KONG (Reuters) - The Chinese corporate bond market has overtaken the United States as the world's biggest and is set to soak up a third of global company debt needs over the next five years, according to rating agency Standard & Poor's, underscoring the growing risk China's debt market is imposing on the global financial system.





Chinese corporate borrowers owed $14.2 trillion (8.37 trillion pounds) at the end of 2013 versus $13.1 trillion owed by U.S. corporations with the switch in rankings taking place a year earlier than it had expected, S&P said on Monday.

The Asia-Pacific region, led by China, is seen accounting for half of global corporate debt financing needs of $60 trillion over the five-year period to 2018 when the region will account for more than half the projected total debt outstanding of $72 trillion.

China, the world's second-largest economy is currently financing a quarter to a third of its corporate debt through its shadow banking sector and this had global implications, S&P said.

"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," the agency 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."

Cash flows and leverage at Chinese corporations are the worst among global peers, having deteriorated from being the best in 2009, according to a corporate financial risk trend measure used by Standard & Poor's.

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This is going to affect the plans of the Chinese in trying to move to a new reserve currency based on their economic system. While they are the largest economy in the world the infrastructure they have in place (financial controls / mechanisms) is not adequate to handle what's being talked about in the article.

They are still not in full compliance with their WTO requirements for their currency.
They have been misreporting their total government debt from all levels of their government.
They are still engaging in currency manipulation to give their businesses an advantage over foreign businesses.
They still engage in a practice that requires every foreign business operating in China to by partnered 50/50 with a Chinese counterpart. This set up has allowed China to essentially force the foreign business, after its in place and built the infrastructure, to make operating in china unfeasible, forcing the foreign business to leave, allowing the Chinese counterpart to continue as is.

I don't see how this is not going to blow up in their face. When it does it wont remain isolated to China, that's for sure.

Seems kind of weird that most of the industrial world is so far in debt that it will take many years to come out of it.

This is like creating gold out of air. Corporations value is based on future revenues, not on the value of the assets. I guess that this is the new world, one where deceit and hard work means nothing compared to deceit and borrowing money to look good. Are there any countries in the free world with legitimate economies anymore? If there are, they sure aren't bragging about it or the industrialized countries will crush them like a cockroach....which is also a real creature.

a reply to: Xcathdra

Yeah this is going to be a problem for them, and us too. Especially with their commodity markets for metals beginning to unwind rapidly. Gotta start somewhere I guess.

Reminds of of the old joke about two guys being chased by a lion, the one guy stops and puts on tennis shoes and then says to the other, "I don't have to outrun the lion, I just have to outrun you."

When this whole debt system unravels the last one standing is the winner... sort of.

a reply to: Bassago

That's the issue though -

Who will be the last one standing and will winning that race be a pyric victory? Business ventures are risky enough however when you attach the Chinese Financial System into the mix at that level, a global level.... It would be like rearranging deck chairs on the titanic.

There needs to be a better way of doing things... There has to be a better way of doing things.

What we have now is not working.
What the Chinese are suggesting is not going to work either.

a reply to: rickymouse

Define what a legitimate economy is and provide an example of a nation that uses it.

a reply to: Xcathdra

Isnt it ok that they just overtook us as top corporate borrower seeing as they have over 3 times US's population?

originally posted by: ImaFungi
a reply to: Xcathdra

Isnt it ok that they just overtook us as top corporate borrower seeing as they have over 3 times US's population?

Yes, but their per capita income is low. The US is the most indebted per citizen. Also corporate debt is not as bad as govt debt. China has about $4 trillion in the bank as a country. The US govt is $17 trillion in debt.

a reply to: rickymouse

This is like creating gold out of air. Corporations value is based on future revenues, not on the value of the assets. I guess that this is the new world, one where deceit and hard work means nothing compared to deceit and borrowing money to look good.

Only a problem for people who believe money is real, that it is something of value, or that debt is bad.

Likewise, the definition of what is ethically and morally acceptable has slidden (new words required LOL).

a reply to: Xcathdra

Can't run out of something you can keep on printing (fiat currency).
Sounds like to me another bank run to suck what little equity the populous has in the currency and transfer it back to the government or corporations.

Welcome to Corporate NWO.

The very important part that you all conveniently forget about is that there are good debt and bad debt. Good debt is when you borrow money and use it to make something that make the economy grow. Bad debt is money you borrow to pay for debt you could not paid or need to survive. Now the big question who's economy will grow around 10% and who's economy is declining. Hmmmm

originally posted by: an0nThinker

originally posted by: ImaFungi
a reply to: Xcathdra

Isnt it ok that they just overtook us as top corporate borrower seeing as they have over 3 times US's population?

Yes, but their per capita income is low. The US is the most indebted per citizen. Also corporate debt is not as bad as govt debt. China has about $4 trillion in the bank as a country. The US govt is $17 trillion in debt.

Actually Chinese finances are not known. What we see is what the Chinese government releases. Its the same with their defense budget. The numbers released by their government are not accurate.

As for overtaking the Us and population, if all things were equal then sure. Since China, and its form of government, are generally not managed in a free market / capitalist sort of way it creates real issues. The mount of debt China has was short by almost a trillion dollars. China "forgot" to add municipal / province / prefecture debt.

Their finance system is not transparent and the actions the Chinese government takes to ensure Chinese businesses win out via illegal subsidies by the Chinese government create very real concerns. Chinese subsidies towards China's oil companies is just the latest example. Chinese companies snagged several foreign companies by virtue of the Chinese government giving the Chinese business their credit card, allowing the Chinese business to severely overpay so they can acquire the company.

I don't believe Chinas economy in its current form / management will be able to support what's being reported for the next 5 years.

originally posted by: neversaynever
The very important part that you all conveniently forget about is that there are good debt and bad debt. Good debt is when you borrow money and use it to make something that make the economy grow. Bad debt is money you borrow to pay for debt you could not paid or need to survive. Now the big question who's economy will grow around 10% and who's economy is declining. Hmmmm

As I stated, the Chinese economy is not a typical free market economy. Its a hybrid that is tightly controlled by the Chinese government. While you are correct about good and bad debt, in this case the debt projected for Chinese businesses is bad debt.

All one has to do is review their WTO requirements when they joined and compare those requirements to where China is currently at in implementing those requirements. They were given 5 years to transition their currency to free float like all other WTO members.

To date they are still not in compliance.

China joined the WTO in December of 2001.

Who do the WTO think they are to tell anyone anything? Do you really think the Chinese gonna do what the WTO say? They anyways just a usa mouthpiece. Sorta a puppet of the puppet. a reply to: Xcathdra

originally posted by: neversaynever
Who do the WTO think they are to tell anyone anything? Do you really think the Chinese gonna do what the WTO say? They anyways just a usa mouthpiece. Sorta a puppet of the puppet. a reply to: Xcathdra

Then why did China freely join the WTO?

If your gonna lip off maybe you should know what your talking about first?

originally posted by: neversaynever
The very important part that you all conveniently forget about is that there are good debt and bad debt. Good debt is when you borrow money and use it to make something that make the economy grow. Bad debt is money you borrow to pay for debt you could not paid or need to survive. Now the big question who's economy will grow around 10% and who's economy is declining. Hmmmm

You have no idea what you are talking about.........The US economy is not in decline it is in the positive. This is a fact. I love it when people with no idea of what they are talking about comment.

a reply to: SubTruth
Its in the green by quantitative easing, excessive bond selling, low interests rates. It clearly isn't healthy when every year we borrow a trillion to run the country. Do you think a policy like this is sustainable long term? The only thing that props us up is the ability to print unlimited dollars without inflation.

a reply to: an0nThinker

FDR thought it a good idea and pretty much proved it. With that said times have changed and I would now go along with the level of debt we have is not sustainable and negatively affects the economy and by extension other markets globally.

The country to watch is Australia. Their government has removed their federal debt limit.
Australia to scrap soaring national debt ceiling - Dec 2013

The government has promised more transparency on debt and will explain to Parliament if debt increases by more than AU$50 billion.

Its an interesting experiment and since their economy is essentially like the US it could be viewed as a test for a possible US version. FDR discovered the Federal government shelling out the cash actually assist in long term growth of the national economy.

China has their own version of global currency and local currency to try and separate the 2 however its problematic based on how their system works / type of government/ideology.

Being able to separate infrastructure spending from normal business might be one possible way to ease some of the economic issues nations seem to have. The US would benefit however China would not. A LOT of the Chinese economy is based on construction locally. The reason for building all of those ghost cities, in small part to help ease crowding issues, was done in large part to employ people across many sectors. That investment is what helps keep china's economy growing at double digit numbers. With Chinas export issues causing a slow down in their local economies it will eventually spread.

If China does not diversify their economy more than it is now, and if they go forward with what's being projected in the article, if their economy tanks the effects will be nasty.