Pharmaceuticals bright spot in China, but chemicals, metals challenged: Coface

HONG KONG – China’s pharmaceutical sector remains the brightest spot in a slowing economy, and is showing steady profit margins, according to a new report by global insurer Coface.

“Besides a clear improvement in corporate payment experience in 2015, pharmaceutical enterprises are less dependent on borrowing for their operations and fixed asset investment expansions,” Coface says.
“The medium term outlook is positive, with a structural increase in demand backed by the continuing rise of the middle classes and the ageing population.
Sector losers in China that are likely to face longer term growth challenges, such as chemicals and metals, are assigned with either high, or very high risk ratings, the report says.
“From the perspective of credit risks, Chinese corporates within these sector losers are assigned with high, or very high, risk ratings - indicating a higher probability of defaults and insolvencies, due to challenging business conditions.
“Neutral sectors, which are those not directly benefitting from the Government’s structural reforms (such as agrofood, paper-wood and textile-clothing), have been assessed as either medium or high risk.
“Among the 12 sectors, construction and metals are the only two assessed as very high risk. The risks for these two sectors are linked to recent hot topics, such as debt problems amid a surge in non-performing loans, a number of corporate bond defaults, industrial overcapacities and zombie companies.
“With sluggish private investment and slowing SOE investment, within a backdrop of low profitability, growth in construction and installation is likely to cool in the second half of the year.
“This will cast a shadow over the construction sector and reduce demand for construction materials - in particular cement and metals, which have already been suffering from overcapacities.”  www.coface.com (ATI).