An Attempt to Profile the Finances of China’s Enterprise Sector
IMF Working Papers, November 1, 2001
Source details
- Canonical URL
- An Attempt to Profile the Finances of China’s Enterprise Sector
Other formats
Bibliographic details
- Authors: Cem Karacadag, Paul J. Heytens
- Published: November 1, 2001
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451859263.001
Summary
- Examines the leverage, efficiency, and debt-repayment capacity of the Chinese enterprise sector using aggregate and firm level data.
- Uses the cash coverage of interest expense as a bridge between enterprise finances and banks' asset quality to develop insights on banking soundness.
- Interest coverage analysis corroborates the high level of nonperforming loans in the financial system.
- Concludes there is urgency in hardening budget constraints on state-owned enterprises and stemming the flow of new bad loans by accelerating ongoing structural reforms.
Key findings
- The cash coverage of interest expense provides a direct link between enterprise-level finances and bank asset quality.
- Interest coverage analysis supports evidence of a high level of nonperforming loans in the financial system.
- The situation underscores the need to harden budget constraints on state-owned enterprises (SOEs) and to stem the flow of new bad loans through structural reform.
Policy recommendations
- Harden budget constraints on state-owned enterprises.
- Accelerate ongoing structural reforms to stem the flow of new bad loans and improve banking soundness.
Subject areas and keywords
- Subjects: Bank credit; Economic sectors; Financial institutions; Financial sector; Money; Nonperforming loans; State equity participation; Stocks; Taxes
- Keywords: Bank credit; Chinese corporate sector; Chinese economy; Chinese financial sector; coverage ratio; enterprise interest coverage; Financial sector; fixed asset; interest; negative equity; Nonperforming loans; nonviable SOEs; NPL ratio; public enterprise; ratio; State equity participation; Stocks; WP