China’s biggest companies can weather US-China trade war escalation, says rating agency S&P
- However, prolonged uncertainty and lagging confidence could eventually make it harder for Chinese companies to refinance debt, S&P says
- Only about 8 per cent of companies S&P rates have direct exposure to increased tariffs through exports
S&P Global Ratings said the biggest Chinese companies it rates should be able to withstand the escalation of a trade war between the US and China in the near term, but prolonged uncertainty and lagging market confidence could make it harder for them to refinance debt if it persists.
The rating agency said it estimates that only about 8 per cent of the companies that it assesses have direct exposure to the increased tariffs on exports to the US and most have sufficient buffers or alternative revenue options to offset the effects.
Nearly half of the companies S&P rates are state-owned enterprises and 22 per cent are in the property sector. The export sector has the highest exposure to trade tariffs, but many of those companies are foreign-owned or small private firms that S&P does not cover.
“An escalation in US trade tensions shouldn’t be an immediate hammer blow for China’s rated companies,” Cindy H Huang, an S&P credit analyst in Hong Kong, said in a report released on Wednesday.
“Rated issuers could absorb for now a 25 per cent hike in tariffs on all Chinese goods exported to the US, given their focus on domestic markets.
“But the second-order impacts such as disruptions to supply chains, market confidence, and currency volatility could become significant credit negatives if the situation is prolonged and escalates further.”
