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Assessing China’s Corporate Sector Vulnerabilities

Author

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  • Miss Mali Chivakul
  • Mr. Waikei R Lam

Abstract

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.

Suggested Citation

  • Miss Mali Chivakul & Mr. Waikei R Lam, 2015. "Assessing China’s Corporate Sector Vulnerabilities," IMF Working Papers 2015/072, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2015/072
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    References listed on IDEAS

    as
    1. Wenlang Zhang & Gaofeng Han & Steven Chan, 2014. "How Strong are the Linkages between Real Estate and Other Sectors in China?," Working Papers 112014, Hong Kong Institute for Monetary Research.
    2. International Monetary Fund, 2014. "Republic of Kazakhstan: Staff Report for the 2014 Article IV Consultation," IMF Staff Country Reports 2014/242, International Monetary Fund.
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    Citations

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    Cited by:

    1. Michael, Bryane & Zhao, Simon, 2016. "Bubble Economics How Big a Shock to China’s Real Estate Sector Will Throw the Country into Recession, and Why Does It Matter?," EconStor Preprints 141314, ZBW - Leibniz Information Centre for Economics.
    2. repec:zbw:bofitp:2018_001 is not listed on IDEAS
    3. Song, Zheng (Michael) & Xiong, Wei, 2018. "Risks in China’s financial system," BOFIT Discussion Papers 1/2018, Bank of Finland, Institute for Economies in Transition.
    4. Snehal S Herwadkar, 2017. "Corporate leverage in EMEs: did the global financial crisis change the determinants?," BIS Working Papers 681, Bank for International Settlements.
    5. Chris Read, 2017. "Conditions in China’s Listed Corporate Sector," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 67-74, June.
    6. Zhang, Min & Zhang, Yahong, 2022. "Monetary stimulus policy in China: The bank credit channel," China Economic Review, Elsevier, vol. 74(C).
    7. Nir Klein, 2016. "Corporate Sector Vulnerabilities in Ireland," IMF Working Papers 2016/211, International Monetary Fund.
    8. Sun, Lixin, 2016. "Corporate Deleveraging and Macroeconomic Policies: Evidence from China," MPRA Paper 69140, University Library of Munich, Germany.
    9. Dieppe, Alistair & Gilhooly, Robert & Han, Jenny & Korhonen, Iikka & Lodge, David, 2018. "The transition of China to sustainable growth – implications for the global economy and the euro area," Occasional Paper Series 206, European Central Bank.
    10. International Monetary Fund, 2016. "Ireland: Financial Sector Assessment Program: Technical Note-Nonbank Sector Stability Analyses," IMF Staff Country Reports 2016/317, International Monetary Fund.

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