Current event post—China’s corporate debt’s has risen the highest number since 2008

According to the GK Dragonomics’s research, China’s corporate debt “has risen from 108 percent of the entire economy last year to 122 percent in 2012”. (Dexter, 2012) However, according to Li Yang’s study, who is vice president of the Chinese Academy of Social Sciences (CASS), this number is 105.4 percent in the middle of 2012 although it is highest in the 20 countries he studied. At the article, He alerted that China cooperate debt had touching “alarm level”. Unfortunately, this trend did not reverse in the end of 2012. Based on GK’s research, although some selected main key economic indicators showed that economic performance were good, such as industrial production or manufacturing index., this high debt has affected the Chinese company.

Normally, high debt is not a problem for China companies. For a long time, since most of main Chinese companies are in manufacturing industry, they had to survive within high debt. According to the report of Bloomberg Businessweek, the account payable of industrial companies had reached 1.3 trillion dollars. It included private and state-owned firms. As the Bloomberg’s table showed, the ratio of Chinese debt to GDP has been above 150 percent since 1999. However, the situation should be different at this time. This debt wave started at late 2008. When the central government issued 4 trillion loan to help companies deal with sub-prime mortgage crisis. The projected goal was that the companies would pay back when the economic picked up. However, the slow economic recovery speed caused that most of key industries had to face overcapacity and more debt. Moreover, since the sales decreased, lots of companies, either privacy or stated-owned, had invested real estates in last few years. As a result, the real estates price irrational increased in China and had a high risk of “bubbled burst”. 

In fact, the lawsuit about debt disputes has increased. Cited from Bloomberg, the logistics units of one of bigged steel corporation in China “had filed 23 lawsuits for the recovery of money and goods it was owned”(Dexter, 2012). Under Bloomberg’s viewpoint, bad bank loans will highly increase in future. On the other word, there will be a hard landing. To avoid the risk, first, state-owned bank will shut the government loan, as the Zhou, head of the People's Bank of China (PBOC),said, “we are tightly controlling new loans and will ensure no new loans to the sector”.(Reuters, 2012.11.11). Second. The China government will try to slow economic growth to adjust the economic structure.

This is not a specific business event, such as Facebook’s IPO or iPhone 5 going public. However, in my opinion, since China has been the second largest economy in the world, most of manager may need to face the fact that China will slow its growing speed. For example, the U.S. Investors may need to be cautious when they decide to invest Chinese local companies or decide to expand their business. Also, the company depending on China import may reduces their sales forecast in next few years. The local supplier may ask U.S. multinational corporations provide more finance support, which it was easy to loan from bank if the company proved they had enough orders. This good old time is over.

Reference

1. Dexter Roberts, Corporate China's Black Hole of Debt, Bloomberg Businessweek, 2012-11-15, Retrieved from:
http://www.businessweek.com/articles/2012-11-15/corporate-chinas-black-hole-of-debt

2. Gordon G. Chang, How Will China Pay Off Its Debt?. Forbes, 2012.2.26. Retrieved from: http://www.forbes.com/sites/gordonchang/2012/02/26/how-will-china-pay-off-its-debt/

3. Reuters, China banks turns blind eye as corporate debt piles up, Asian legal business,2012.11.23, Retrieved from:
http://asia.legalbusinessonline.com/news/analysis/china-banks-turn-blind-eye-as-corporate-debt-piles-up/109660

4. Xinhua Press .Corporate debt reaches 'alarming level', China Daily, 2012.5.18, Retrieved from:
http://www.chinadaily.com.cn/business/2012-05/18/content_15328186.htm


5. Reuters, China Economy Recovering, Bad Debt Risks Dismissed, CNBC, 2012.11.11. Retrieved from: http://www.cnbc.com/id/49784016