Chinese credit quality to improve over next two years, says Fitch
Mainland firms to enjoy better cash flow and reduced bank loans, thanks to central government support
Despite widespread concern that China’s economy is headed for crisis amid ballooning debt and tapering private investment, credit rating agency Fitch Ratings is optimistic that credit quality in Chinese companies over the next two years will strengthen on the back of government support.
State-owned enterprises (SOEs) in particular, which represent 68 of the top 100 listed non-financial companies in China by revenue, will experience cash flow growth exceeding net debt growth over 2015 to 2017, as a result of strengthened government efforts to drive down corporate debt, according to a Fitch report covering the top 100 Chinese listed companies.
Senior director of Fitch Corporate Ratings Ying Wang, said the Chinese government will help to release the burden of corporate debt of SOEs in the near future through capacity reform and debt restructuring.
“Using its capacity reform approach, the central government will help larger players within the same industry to consolidate through M&As into even bigger and more-unified companies to eliminate competition between SOEs and increase their power,” she said.
According to Matt Jamieson, head of Apac research at Fitch Ratings, the impact of such a government approach would be most visible in sectors that are “highly leveraged and face severe overcapacity”.
Jamieson indicated in the report that “real estate and metals and mining companies are the top two sectors forecast by Bloomberg consensus estimates [which Fitch agrees with] to transition from the negative to positive credit zones”.
