In fact, China\u2019s big state firms were largely a bloated, inefficient and cosseted lot. The real dynamism in the Chinese economy has long come from its entrepreneurial private firms, which now account for perhaps two-thirds of the country\u2019s entire economic output.<\/p>\n
Thanks to weak commodity prices, a troubled property market and slowing economic growth, the outlook for all Chinese corporations is dimmer than it was a few years ago. But debt is a much bigger problem at the largest state firms. A report released on November 30th by Standard & Poor\u2019s, a credit-rating agency, looks at 200 public and private Chinese firms in 18 industries and warns that the creditworthiness of many big state firms has worsened significantly. S&P found that the average ratio of gross debt to earnings (before interest, tax, depreciation and amortisation, or EBITDA) at state firms rose from roughly 3 in 2008 to over 5 last year.<\/p>\n
The worries are most acute among metals firms, such as Hebei Iron & Steel, and transport companies, such as China COSCO, a shipping line. The agency gives both of those companies a maximum financial-risk rating of 6. The main exceptions to the trend, the report notes, are state firms in industries such as telecoms and energy, which the government protects from serious competition.<\/p>\n
Private firms are not without their problems, although the ratio of gross debt to EBITDA at such firms remains below 4 on average. The property sector and \u201cbricks-and-mortar\u201d retailers have been hit hard of late, and private firms with exposure to them\u2014such as Fosun, one of China\u2019s largest private conglomerates\u2014are also seeing a deterioration in their creditworthiness. But most private firms are in e-commerce, consumer businesses and technology services, which are less politicised industries that are still doing well.<\/p>\n
The conventional wisdom has long been that China\u2019s biggest and best-known state firms will never be allowed to default, no matter how weak their finances. But doubts are now creeping in. Christopher Lee of S&P, an author of the agency\u2019s report, says, \u201cthere is a growing sense that the weakest are not default-free.\u201d The question for officials now, he reckons, is \u201chow to let them go without sparking a systemic meltdown.\u201d<\/p>\n
<\/p>\n","protected":false},"excerpt":{"rendered":" Are China’s Big State Owned Firms Credit Worthy? \u00a0There\u00a0was a time when China\u2019s biggest state-owned enterprises were seen as the country\u2019s crown jewels. The government cleaned up the balance-sheets of the best of the firms, and listed their shares on … Continue reading ![\"China's](\"http:\/\/www.w-t-w.org\/en\/wp-content\/uploads\/2015\/12\/Chinas-SOEs-300x224.jpg\")
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