Chinese debt is a hot topic right now, competing with the likes of Brexit and presidential hopeful Donald Trump to play the role of boogeyman for global investors. It’s hovering in the peripheral vision, a risk that is worrying but difficult to assess.
It may seem surprising, therefore, that at 86 percent of common equity, the total debt of China’s 3,000 largest listed companies, is just over half the level of the world’s 3,000 largest listed companies, according to our recent study, the Natixis China Corporate Debt Monitor.
But numbers can be deceiving (particularly averages), and investors would be wise to look into the details if they want to avoid the devil.
Sticking with the sample of 3,000, we found that, while less indebted than global peers, Chinese companies are having a harder time paying the interest on corporate debt, primarily due to weak revenues in a slowing economy, riddled with excess capacity and inefficient assets. These Chinese companies also have much more short-term debt on the balance sheets, meaning they will need to pay off—or more likely, roll over—loans sooner. …