Cautioning China’s corporate debt ratio has reached “dangerous” levels, experts have warned against any stimulus measures to boost domestic demand to compensate for falling exports, saying it could put a heavy strain on corporate firms.

China’s corporate debt-to-GDP ratio stood at 107 per cent in 2011, the highest in the world, said Li Yang, Vice-President of the Chinese Academy of Social Sciences, a top government think tank.

A ratio that exceeds 90 per cent is considered “dangerous”, Li was quoted by state-run China Daily as saying today, citing the standard set by the Organisation for Economic Cooperation and Development.

Li Zhenyu, rating director of China Lianhe Credit Rating Co Ltd, said the figure is likely to be calculated by taking the total debt Chinese banks carry from loans and other methods of borrowing, such as corporate bonds, and dividing it by the country’s GDP.

Data from the China Banking Regulatory Commission show China’s banking system had 55 trillion yuan ($8.63 trillion) in outstanding loans by the end of 2011.

The country’s GDP for the same year exceeded 47 trillion yuan.

“The figure doesn’t reveal the financial positions of particular companies,” Chen Daofu, policy research chief at the Financial Research Institute of the State Council’s Development Research Centre, said.

“But large Chinese companies’ debt burden is indeed increasing because of the strong momentum seen in fixed-asset investments after 2008,” he said.

Chen said the average debt-to-asset ratio of Chinese companies with more than 20 million yuan in annual revenue was about 40 per cent.

(This article was published on August 7, 2012)
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