Target sectors to curb corporate debt

China's non-financial corporate debt has reached record high. While this is unlikely to lead to a systemic crisis in the short term, it is still a worrying sign for the economy.

The ratio of corporate debt-to-GDP was as high as 155 percent last year, according to an estimate by the ASEAN+3 Macroeconomic Research Office (AMRO). Since the beginning of this year, this has started to flatten and the growth in the corporate debt began to slow due to stepped-up regulation and supervision by the authorities and declining leverage in the financial sector. However, challenges remain as the improvement has resulted from higher nominal GDP growth rather than a decline in corporate debt.

Based on solvency and liquidity indicators as well as non-performing loan ratios, the bulk of corporate debt is not risky. Nonetheless, the problem is concentrated and more severe in some sectors where credits have built up while profitability and repayment capacities have declined, as noted by AMRO in its recent study titled "High Corporate Debt in China: Macro and Sectoral Risk Assessments". Those are prioritized sectors under the investment-led growth model. Manufacturing accounts for the most significant shares of total corporate debt at 20 percent, followed by real estate (15 percent), utilities (14 percent), construction (12 percent) and transport (12 percent).