The Chinese corporate bond market has overtaken the United States as the world's biggest and is set to soak up a third of global company debt needs over the next five years, according to rating agency Standard & Poor's, underscoring the growing risk China's debt market is imposing on the global financial system.
Chinese corporate borrowers owed $14.2 trillion U.S. at the end of 2013 versus $13.1 trillion owed by U.S. corporations with the switch in rankings taking place a year earlier than it had expected, S&P said on Monday.
The Asia-Pacific region, led by China, is seen accounting for half of global corporate debt financing needs of $60 trillion U.S. over the five-year period to 2018 when the region will account for more than half the projected total debt outstanding of $72 trillion U.S.
China, the world's second-largest economy is currently financing a quarter to a third of its corporate debt through its shadow banking sector and this had global implications, S&P said.
Cash flows and leverage at Chinese corporations are the worst among global peers, having deteriorated from being the best in 2009, according to a corporate financial risk trend measure used by Standard & Poor's.
Reflecting growing investor jitters over credit risks, some Chinese companies in the stretched sectors have recently dropped plans to issue bonds in the onshore market as investors have demanded higher interest rates for the declining margins and refinancing risks.
Earlier this month, online gaming company Shenzhen Zqgame scrapped plans for a bond offering saying it would not help in reducing financing costs.
Bond yields on weaker credits have risen faster than those rated AAA. In the past year the Thomson Reuters onshore benchmark for AA-rated companies for onshore China debt has risen 120 basis points to 6.70%. The AAA-rated curve has moved up 80 basis points to 5.50% in the same period.
