China: High corporate debt a risk factor – Commerzbank

By FXStreet Dr Jörg Krämer, Chief Economist at Commerzbank, notes that Chinese non-financial corporate debt has risen to 160% of GDP and since 2008, the ratio increased by 62.3 percentage points.

Key Quotes

“Debt is concentrated in sectors which are suffering from over-capacities and falling profit margins. In the real estate and construction sectors, the debt burden is especially problematic. There is a risk that many companies will not be capable serving their debt loads over the longer term.

The government will probably stabilize endangered companies in order to prevent job losses. Many highly-indebted companies are state-owned in any case.

The downside of these policies is that life-support measures for shaky companies will withhold resources from healthy companies. “Zombification” will weaken the Chinese economy for years and is set to prevent a rapid rebound.”
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Source:: FX Street