China Bigger Than U.S. With $14 Trillion in Company Debt

Residents crossing a road in the central business district in Beijing. Photograph: Greg Baker via AFP/Getty Images Close

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Residents crossing a road in the central business district in Beijing. Photograph: Greg Baker via AFP/Getty Images

Chinese companies borrow more than their American counterparts as the world’s second-largest economy takes center stage in corporate-debt markets.

Borrowers from China had $14.2 trillion in debt at the end of last year, exceeding every other country including the U.S., which had $13.1 trillion in company obligations, according to a report dated June 15 by Standard & Poor’s. Needs of Chinese issuers will increase to $20 trillion through the end of 2018, a third of the $60 trillion in global funding needs.

Borrowings in the Asia-Pacific region will overtake both North America and Europe by 2016 as China and neighboring countries widen their lead as the world’s largest group of corporate borrowers, according to S&P. Bonds (BCOR), as opposed to loans, will also become a more important source of financing, increasing 3.5 percent, or almost $3.1 trillion.

“Higher risk for China’s borrowers means higher risk for the world,” Jayan Dhru, S&P’s global head of corporate ratings in New York, wrote in the report. “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.”

Borrowings Rise

Borrowers from China and Hong Kong have sold $52.3 billion of dollar-denominated securities this year, some 55 percent of total sales in the region outside Japan, according to data compiled by Bloomberg. China Petrochemical Corp. is Asia’s biggest U.S.-currency note issuer, tapping international investors for $6 billion of funds since Dec. 31. China National Offshore Oil Corp., the nation’s largest offshore energy explorer, raised $4 billion from a sale of three-, 10- and 30-year securities April 23.

“The amount of financing needs is big compared with what we’ve seen in the last few years” from Chinese companies, said Simon Ip, head of markets and investment solutions in Singapore at Credit Agricole Suisse SA. “That may be partly due to their global expansion.”

Syndicated loans in Asia-Pacific excluding Japan total $179 billion in 2014 compared with $168.5 billion the same period of 2013, according to data compiled by Bloomberg.

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.

Cash flow and leverage at China’s companies, while better than global peers in 2009, have worsened in subsequent years, according to S&P, which compared corporates in Asia’s biggest economy with more than 8,500 listed companies globally.

China’s corporate issuers account for about 30 percent of global corporate debt, with one-quarter to one-third of it sourced from China’s shadow banking sector, S&P said. That means as much as 10 percent of global corporate debt, about $4 trillion to $5 trillion, is exposed to the risk of a contraction in China’s informal banking sector.

“With China’s economy likely to grow at a nominal 10 percent per year over the next five years, this amount can only increase,” the S&P analysts wrote.

To contact the reporters on this story: Katrina Nicholas in Hong Kong at knicholas2@bloomberg.net; Sridhar Natarajan in New York at snatarajan15@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net; Shannon D. Harrington at sharrington6@bloomberg.net Faris Khan, John Parry

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