Assessing China’s Corporate Sector Vulnerabilities

March 30, 2015

Preview Citation

Format: Chicago

Mali Chivakul, and Waikei R Lam. Assessing China’s Corporate Sector Vulnerabilities, (USA: International Monetary Fund, 2015) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper documents and assesses the risk stemming from rising corporate indebtedness in China using a firm-level dataset of listed firms. It finds that while leverage on average is not high, there is a fat tail of highly leveraged firms accounting for a significant share of total corporate debt, mainly concentrated in the real estate and construction sector and state-owned enterprises in general. The real estate and construction firms tend to face lower borrowing costs and could withstand a modest increase of interest rate shocks despite their high leverage. The corporate sector is however vulnerable to a significant slowdown in the real estate and construction sector. Our sensitivity analysis suggests that the share of debt that would be in financial distress would rise to about a quarter of total listed firm debt in the event of a 20 percent decline in real estate and construction profits.

Subject: Corporate sector, Economic sectors, Financial crises, Financial institutions, Global financial crisis of 2008-2009, Loans, Manufacturing, Mining sector

Keywords: China, Construction firm, Construction sector firm, Corporate sector, Firm distribution, Global, Global financial crisis of 2008-2009, Interest rate shock, Leverage, Listed firm, Loans, Manufacturing, Mining sector, Nonfinancial firm, Real estate, State-owned enterprise (SOE), WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/072
Stock No:

WPIEA2015072
ISBN:

9781484308783
ISSN:

1018-5941

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