Beijing, Aug 7 - Cautioning China's corporate debt ratio has reached "dangerous" levels, experts have warned against any stimulus measures to boost domestic demand to compensate for falling exports, saying it could put a heavy strain on corporate firms.
China's corporate debt-to-GDP ratio stood at 107 percent in 2011, the highest in the world, said Li Yang, vice- president of the Chinese Academy of Social Sciences, a top government think tank.
A ratio that exceeds 90 percent is considered "dangerous", Li was quoted by state run China Daily as saying today, citing the standard set by the Organisation for Economic Cooperation and Development (OECD). Li Zhenyu, rating director of China Lianhe Credit Rating Co Ltd, said the figure is likely to be calculated by taking the total debt Chinese banks carry from loans and other methods of borrowing, such as corporate bonds, and dividing it by the country's GDP.
Data from the China Banking Regulatory Commission show China's banking system had 55 trillion yuan (USD 8.63 trillion) in outstanding loans by the end of 2011. The country's GDP for the same year exceeded 47 trillion yuan.
"The figure doesn't reveal the financial positions of particular companies," Chen Daofu, policy research chief at the Financial Research Institute of the State Council's Development Research Centre said.
"But large Chinese companies' debt burden is indeed increasing because of the strong momentum seen in fixed-asset investments after 2008," he said.
Chen said the average debt-to-asset ratio of Chinese companies with more than 20 million yuan in annual revenue was about 40 percent. Some industries, such as civil aviation, are saddled with especially high debt ratios in China.
The corporate debt is still increasing at a faster rate than revenues and there is no evidence to suggest that debt ratios are decreasing, Chen said.
"Many State-owned enterprises have seen their debt ratio lowered in recent years, while they are in the process of getting listed. But, during the current economic downturn, we may see an increase in the bankruptcy rate," Li said.
The average debt ratio among listed state owned enterprises, (SOEs), is above 60 percent, he said adding that 70 percent is normally the highest acceptable rate.
"A high debt ratio is largely the result of a lack of financing channels," Wang Yuanjing, a researcher at the National Development and Reform Commission said.
"It's hard to say whether corporate debt ratios are under control," Wang was quoted by China National Radio as saying. "But once these troubles break out in one company, that may cause a chain reaction and lead to a debt crisis," he said.
According to Fan Junlin, a senior analyst at the Agricultural Bank of China: "Some said the Chinese government has the financial wherewithal to pay off the debts of companies in the country. PTI