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State-Owned Enterprises Leverage as a Contingency in Public Debt Sustainability Analysis: The Case of the People's Republic of China

Author

Listed:
  • Ferrarini, Benno

    (Asian Development Bank)

  • Hinojales, Marthe

    (Asian Development Bank)

Abstract

We reflect state-owned enterprises’ (SOE) leverage within the standard debt sustainability assessment framework. Based on company data and the interest coverage ratio as a measure of debt at risk, aggregate baseline projections and fan charts gauge SOE debt as a contingent liability to the public sector. We find that SOE leverage in the People’s Republic of China has grown to a large liability that deserves the urgent attention it has been receiving from the authorities. While there is no room for complacency, there is no need for panic either; even if authorities had to step into mop up as much as 20% of SOE debt at risk gone bad, this would appear to be manageable at roughly 2.7% of the gross domestic product in 2016 or 5.5% by 2021. These findings are reflective of discretionary assumptions about future developments in the SOE sector and the broader economy—including baseline conditions premised on preventive government action to slow borrowing—that are adjustable to reflect analysts’ prerogatives and expectations.

Suggested Citation

  • Ferrarini, Benno & Hinojales, Marthe, 2018. "State-Owned Enterprises Leverage as a Contingency in Public Debt Sustainability Analysis: The Case of the People's Republic of China," ADB Economics Working Paper Series 534, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0534
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    File URL: https://www.adb.org/publications/state-owned-enterprises-public-debt-sustainability-prc
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    References listed on IDEAS

    as
    1. Kopits, George & Ferrarini, Benno & Ramayandi, Arief, 2016. "Exploring Risk-Adjusted Fiscal Sustainability Analysis for Asian Economies," ADB Economics Working Paper Series 483, Asian Development Bank.
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    More about this item

    Keywords

    contingent liabilities; corporate leverage; People’s Republic of China; public debt sustainability; state-owned enterprises;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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