China has passed the U.S. as the world’s largest issuer of corporate debt, according to a report released today by S&P. Despite the record, there has been a worsening cash flow at Chinese companies since the financial crisis.
China’s non-financial companies had $14.2T in outstanding bank loans and bonds at the end of last year, compared with $13.1T in the United States. New growth in China is expected to put corporate debt levels at more than $20T by the end of 2018 - a third of the world's corporate borrowing.
However, S&P approximates that around one-quarter to one-third of China’s corporate debt comes from the country’s shadow banking sector - non-bank lending that caters to borrowers who have difficulty obtaining financing. Shadow banking has caused corporate debt to surpass Chinese household borrowing and government debt, which raises red flags of the ability for companies to make interest payments and repay bank loans.