Assessing China’s Corporate Sector Vulnerabilities
March 30, 2015
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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
Pages:
28
Volume:
2015
DOI:
Issue:
072
Series:
Working Paper No. 2015/072
Stock No:
WPIEA2015072
ISBN:
9781484308783
ISSN:
1018-5941
