China eases on the gas pedal to cut debt as the level of corporate borrowings dropped in 2018
- ‘Modest erosion’ in debt-to-earnings levels in 2018 expected to continue this year, S&P says
- Mining, retail among sectors that have seen the most deterioration, the rating agency says
Financial risk has increased among Chinese companies as efforts to cut corporate debt over the past few years have been put on pause as the mainland’s economy has slowed, according to S&P Global Ratings.
China’s largest companies saw a “modest erosion” in debt-to-earnings levels in 2018 and that trend is expected to continue this year, the credit rating agency said in a report after conducting a survey of 257 companies in China.
“After lowering leverage over 2015-2017, many companies had buffers to weather tougher operating conditions,” Cindy H. Huang and Chang Li said in a report dated Monday. “Nevertheless, financial risk increased across most of the 21 sectors surveyed. And most of the deterioration occurred in the lower-rated sectors, including mining and retail.”
The increase in debt levels comes after a campaign by Chinese authorities in recent years to reduce corporate borrowing levels, known as deleveraging. That has included asset sales by companies, such as Anbang Insurance Group, HNA Group and Dalian Wanda Group in recent years.
It also comes against the backdrop of a slowing economy in China and a trade war between Washington and Beijing that has weighed on global trade and investment for more than a year.