50 leading Chinese firms covered in an S&P survey show improving cash flow, balance sheets and a reduction in debt The balance sheets of China's top companies are expected to improve in the near future because of improving cash flow and lower debt, according to a report by ratings agency Standard & Poor's. The agency said the financial ratios for the 50 companies covered in the report improved last year, with lower debt, stronger financial coverage ratios and stable liquidity, a trend that would continue as commodity prices rose and the economy surged ahead. However, the split between winners and losers was increasing as natural resources firms in China were benefiting from rising prices globally while competition in the industrial sector was growing. 'Overheating, tariff reductions and commodity swings are important external factors that affect results,' S&P director John Bailey said. 'Internally, some companies are finding it hard because of poor product mix. As tariffs are reduced, they will be exposed to the cold winds of competition.' S&P assigned ratings to the country's top 50 companies by revenue and also identified the most profitable. Companies in the natural resources area, such as oil, have seen their profits increase because of a rise in commodity prices globally. Meanwhile, the industrial and consumer sectors are subject to increasing price competition due to excessive investment and rising competition from China's entry into the World Trade Organisation. For the group as a whole, interest coverage - a measure of how much cash is available to pay interest - improved to 9.6 times last year from 8.1 times in 2001. In addition, debt levels have declined due mainly to improved profits at the largest among the companies surveyed, which include many oil firms. Net debt to total capital declined to 18 per cent over the past two years from 21 per cent in 2000. Not all is rosy for the group. Return on permanent capital, adjusted for tax and other items, fell to 9.2 per cent from 11 per cent in 2001 and 12 per cent in 2000, which suggested 'that despite efficiency gains, some underperforming assets remain', S&P said. S&P, which applied debt ratings to just nine of the top 50 companies, acknowledged that a group based on revenue alone was not necessarily a useful comparison, but said the report was supposed to be a general primer on Chinese companies and not an in-depth look. The report also does not include cross-border comparisons of cash, debt or ratios, measures most investors use to make investment decisions. S&P Asia-Pacific managing director Paul Coughlin said: 'One of the reasons we published the report is that few Chinese companies have ratings. There is a new generation of Chinese companies emerging.' Of the top 50 companies, 12 are in the oil sector, eight in steel, five in electrical appliances and five in telecommunications.