By Zhang Wenkui, Enterprise Research Institute, DRC
Research Report No.15, 2017 (Total 5090) 2017-02-10
Abstract: China’s total corporate debts keep expanding and the leverage ratio is surging hastily. However, the asset-liability ratio of industrial enterprises is much lower than that of 1998, and the asset turnover ratio and interest coverage ratio are also much better than that of the said period. Especially, the liability ratio and solvency ability of private enterprises stand at a normal level, with risks generally under control. Yet what’s to be warned is that the debt risks for state-owned enterprises (SOEs) are rapidly piling up. SOEs have contributed only around one fifth to China’ s GDP whereas the share of their debts account for half of the total debts, their asset-liability ratio is already higher than that of 1998 and their interest coverage ratio is merely slightly higher than that of 1998. A good news might be that their asset turnover ratio is still remarkably higher than that of 1998. Generally speaking, the urgency for addressing corporate debts depends on whether SOEs’ debts will heap up or not. To resolve the problem of SOEs’ debts, it is advisable to adopt a market- and law-based approach instead of taking the government-led measure of debt-to-equity swap. Since 2012, China’s economy has entered a period with decelerated growth for market demand, which is adverse to the balance sheet recovery of enterprises. Therefore, the debt issue will take some time to be solved.
Key words: corporate debts, solvency ability, leverage ratio