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Corporate Leverage Ratio Declines Steadily

The Problem of Too High Asset-liability Ratio Is Being Eased Gradually

Submit Time:23-10-2017 | Zoom In | Zoom Out

Author: | Source:People's Daily (September 26, 2017, p. 02)

Abstract:

It is learned from the National Development and Reform Commission (NDRC) on September 25 that thanks to the combined action of various deleveraging measures, the leverage ratio of Chinese enterprises showed a steady trend of decline, and debt risks have been declining. The focus of the next deleveraging work will be put on state-owned enterprises. 

The NDRC said that China's debt risks have been declining, as reflected in many aspects. First of all, the rise of China's total leverage ratio has slowed down significantly and is stabilizing. According to the latest data of the Bank for International Settlements, as of the end of the first quarter of 2017, China's overall leverage ratio was 257.8%, and the year-on-year increase was 4.7 percentage points lower than that at the end of the previous quarter, showing a declining trend for four consecutive quarters; the quarter-on-quarter increase was 0.8 percentage point lower than that at the end of the previous quarter, showing a declining trend for five consecutive quarters. Moreover, the leverage ratio of Chinese enterprises has begun to decline. At the end of the first quarter of 2017, the leverage ratio of China's non-financial enterprises was 165.3%, declining or remaining unchanged quarter on quarter for three consecutive quarters, and the declining trend of non-financial enterprises' leverage ratio was further established. 

In addition, China's micro-leverage ratio showed a downward trend. As of the end of July this year, the asset-liability ratio of China's industrial enterprises above designated size was 55.8%, down 0.7 percentage point year on year, and the problem of too high corporate asset-liability ratio has been eased gradually. Rapid improvement of real economic benefits is also one aspect that reflects declining debt risks. Industrial enterprises walked out of the structural deflation shadows; the market demand picked up; the profit margin of main business income of industrial enterprises above designated size increased to above 6%; profit growth reached up to 20%; business development confidence and momentum enhanced. 

In terms of the key task of the next deleveraging work, the NDRC said that in addition to focusing on reducing state-owned enterprises' leverage ratio, we should remove zombie enterprises as an important way of deleveraging and further support corporate mergers and acquisitions, in order to allow market-oriented debt-to-equity swap to further play a comprehensive role. It is reported that the market-oriented debt-to-equity swap has got off to a good start. As of September 22, all kinds of implementing agencies have signed market-oriented debt-to-equity swap framework agreements with 77 enterprises, amounting to more than 1.3 trillion yuan. 


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