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.
Is this the sign of end of America in globaldomination? China’s nonfinancial companies had total outstanding bank loans and bonds worth $14.2 trillion where elseUnited States had $13.1 trillionat 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.