International Monetary Fund, 2014, “People’s Republic of China—2014 Article IV Consultation—Staff Report,” IMF Staff Country Report No. 14/235 (Washington).
Standard and Poor’s, 2014, “Credit Shift: As Global Corporate Borrowers Seek $60 Trillion, Asia-Pacific Debt Will Overtake U.S. and Europe Combined,” Ratings Direct (New York: McGraw-Hill, June).
Zhang, W., G. Han, and S. Chan, 2014, “How Strong Are the Linkages between Real Estate and Other Sectors in China?” HKIMR Working Paper No.11/2014. Available via the Internet: http://ssrn.com/abstract=2441108 or http://dx.doi.org/10.2139/ssrn.2441108
We thank Steven Barnett, Wei Carol Liao, and Wojciech Maliszewski for helpful comments and contributions. We also thank Daniel Law for his extensive help with the WIND dataset. We are grateful for comments from the seminar participants at the International Monetary Fund and the People’s Bank of China.
The analysis is based on several data sources, including the international investment position (IIP) published by SAFE, consolidated foreign claims of reporting banks on China published by BIS, and offshore bond issuance by Chinese entities available from Dealogic.
This observation stands out in particular for credit exposures of Hong Kong SAR’s bank on the Mainland. More than three-quarters of Hong Kong SAR’s foreign claims are on banks in China (including subsidiaries of Hong Kong SAR’s banks in the Mainland), with rapid growth driven by rising trade credit extended to onshore exporters and banks. Since the launch of RMB cross-border settlement, Hong Kong SAR banks have provided cheap dollar funding to onshore entities in China, with those U.S. positions settled in RMB channeling as CNH deposits in Hong Kong SAR.
Corporate credit here only includes bank credit to corporate, a measure comparable to other countries in the region.
The NBS database includes all industrial firms (firms in manufacturing, mining and utilities only) with annual sales greater than RMB 5 million. The firms in the NBS database account for about 90 percent of total industrial output. The latest year the data are available is 2009.
While using debt-to-equity ratio would make it more comparable to other studies, the debt data (defined as total loans and bonds) are not as comprehensive as the liability data in the listed firm dataset.
Real estate and construction firms have the high leverage on average is understandable given their assets are mostly land, buildings, and materials that could be used as collateral for leverage, but the pace of increase would point to a large buildup of leverage in recent years.
The effective interest rate for a corporation refers to the annual interest payment as a ratio of its total debt.
Estimation uses random effects; since firms do not change their industry or ownership over time, a fixed effect regression would rule out capturing the effects of these variables. To control for outliers, only observations between the fifth and 95th percentiles of leverage and effective interest cost are used.
To put this number into perspective, Spain’s share of debt at risk in the economy was 45 percent in 2010.