Default risks rise as growth sputters

The number of companies in China at risk of default is poised to rise over the medium term as slower domestic GDP growth and the central government's reform agenda, which aims for greater progress toward a market economy, expose overstretched balance sheets in the corporate sector.

In this environment, high-yield private companies in sectors with excess capacity, such as steel, mining, solar, commodity trading and shipbuilding, are most likely to exhibit signs of distress because their financial profiles are relatively weak and their access to funding is limited.

Corporate credit metrics - such as liquidity and leverage - have been weakening for some time, particularly in the high-yield segment, meaning that further defaults cannot be ruled out.