Chinese companies face worsening credit conditions, says S&P

January 23, 2017

HONG KONG - The credit profiles of Chinese companies have improved as deflationary forces abate in China, but new challenges await, S&P Global Ratings said today.

"A rebound in commodity and producer prices has boosted industrial profits, and, as a result, our ratings outlooks on Chinese corporates slightly improved in recent months after falling to a record low in the first half of 2016," said credit analyst, Christopher Lee.

“It is not clear that downstream and consumer sectors will be able to pass on inflated input costs to end customers as the business environment remains highly competitive and oversupplied, and Chinese economic growth continues to ebb.

“Chinese companies remain highly leveraged, and this year face rising funding costs as rising U.S. interest rates and a further depreciation of the renminbi feed through to domestic funding conditions.

That said, companies have been dealing with this situation for several years, and have readied for further stress.”

Lee said Chinese corporates have proactively improved their debt structures, including maturity and currency-mix profiles, but added: "A final risk for Chinese credit profiles is potential trade frictions on
Chinese exports to the U.S, which would add more strain on the manufacturing sector."  www.standardandpoors.com (ATI).