1. China’s debt time bomb?
What are the possible end games following
China’s unprecedented debt boom

2. Some context…
• China has built up an unprecedented
debt pile in the aftermath of the GFC
• Increases in debt of this magnitude
and speed have historically led to
financial crises
• The corporate sector has been the
main driver of this debt boom
• China now bears the highest stock of
corporate debt of any major
economy
• Understanding these corporate
borrowers is key to assessing the
risks of China’s debt pile
Background
• Who are these corporate borrowers
and what is their financial condition?
• How is debt distributed across
industry sectors?
• What proportion of debt is owed by
highly leveraged companies?
• How has leverage evolved over time
and across sectors?
This document provides a deep dive
analysis of the debt owed by over
1,300 Chinese companies listed on
domestic and international exchanges
Key questions
1

3. China bears the highest stock of corporate debt of any major economy
2
0
50
100
150
200
250
300
350
400
Finland
Portugal
Netherlands
Singapore
Norway
France
Sweden
Belgium
China
UK
Hungary
Canada
NewZeland
Australia
Spain
Israel
Turkey
Italy
Switzerland
UnitedStates
Brazil
Argentina
Indonesia
Mexico
SaudiArabia
India
Poland
Chile
Russia
Thailand
Germany
CzechRepublic
Denmark
Greece
Korea
EuroArea
Japan
Malaysia
Corporates
Households
Government
Total non-financial sector debt
% of GDP, 2016
Source: BIS total credit statistics

4. -5.3-5.5
-4.5
-3.5
-3.0
-2.6-2.4-2.2
-1.8
10.710.7
9.8
8.8
7.7
6.6
5.6
4.4
3.7
5.55.25.35.3
4.7
3.9
3.1
2.2
1.8
2012 201420132009 201520112010 H1 172016
Gross debt build-up partially offset by cash hoarding
3
Cash
Total debt
Net debt
1.45x 1.23x 1.63x 2.04x 2.17x 2.30x 2.17x2.15x2.41x
x Net debt / EBITDA
09-16
CAGR
16.5%
15.9%
17.2%
Aggregate debt and cash balances of listed Chinese companies
RMB trillion
Source: Analysis of over 1,300 Chinese companies listed on domestic and international exchanges

5. Debt concentrated in a handful of ‘old economy’ industries
4
746 872 1,169 1,467 1,820
2,414 2,431
814
987
1,266
1,415
1,705
1,946
2,251
2,376 2,244
587
716
902
1,113
1,247
1,350
1,406
1,405 1,488
699
840
1,071
1,158
1,181
1,307
1,396
1,416 1,424
650
634
791
1,024
1,181
1,325
1,313
1,199 1,160
385
469
589
727 831
595379
352
326
239
164
320
227
154
119
95
527516
418
403
282289
268
248
257
245
162
173
182
197192
155
144
104
83
66
46
37
156136
152
147
119
92
81
60
45
2012
6,581
5,565
2011
10,740
2010
4,409
2009
3,652
H1 172015
9,768
2016
10,670
7,668
2014
8,806
2013
Information Technology
Healthcare
Real Estate
Consumer Discretionary
Telecommunication Services
Industrials
Energy
Utilities
Consumer Staples
Materials
09-16
CAGR
16.5%
9.1%
30.3%
17.0%
26.4%
6.9%
27.3%
23.7%
10.6%
13.3%
16.5%
Total debt balance by industry sector – Listed Chinese companies
RMB billion
Source: Analysis of over 1,300 Chinese companies listed on domestic and international exchanges

6. In most sectors, debt also concentrated in a handful of companies
5
Real Estate
113
53
42
49
76
118
67
130
90
60
209
Utilities
156
119
10
136
Cons. S
16
16
HealthTelecom
726
90
516
113
34
58
26
289
Cons. D
108
IT
175
20
192
91
1,199
Energy
95
106
35
38
106
65
80
42
75
192
43
176
171
518
1,405
37
Materials
1,416
139 51
540
2,414
106
Industrials
143
78
96
79
112
156
160
98
121
2,376
271
74
Source: Analysis of over 1,300 Chinese companies listed on domestic and international exchanges
Total debt balance by company and industry sector
RMB billion, 2016

7. Significant differences in leverage across industry sectors
6
-2
-1
0
1
2
3
4
5
6
7
8
Utilities
Average
2010 20132009 201420122011 2015
Industrials
IT
Materials
Real Estate
Telecoms
Energy
H1 17
Healthcare
Consumer Discr.
Consumer Staples
2016
Source: Analysis of over 1,300 Chinese companies listed on domestic and international exchanges
Average net debt to EBITDA ratio by industry

8. Almost 30% of debt owed by highly leveraged companies
7
739 901 935
1,205 1,322 1,627 2,044 2,177 1,980
2,391 2,336 2,206
715
741
829
1,268
1,810 1,605
1,568
1,785 2,033
451
1,114
1,338
1,246
1,384
2,314
2,181
2,824 2,491
1,008
819
1,348
1,669
1,904
2,326
2,889
2,825 3,076
579393353424413275
2015
9,768
2016
10,671 10,741
H1 17
7,668
8,804
201420132010 20122011
5,566
4,409
6,580
2009
3,654
4-7x
>=7x
2-4x
Net cash
0-2x
09-16
CAGR
16.5%
18.4%
15.9%
30.0%
14.0%
9.9%
Source: Analysis of over 1,300 Chinese companies listed on domestic and international exchanges
Total debt balance by degree of leverage (net debt to EBITDA ratio)
RMB billion
Net debt to EBITDA:

9. Debt concentrated in a handful of highly leveraged companies
8
98
113 42
171
1,785
91
78108
174
2,336
143
0-2x
90
113
130
2-4x
106
Net cash
106
112
139
901
271
176
121
>7x
35
4-7x
75
2,825
40
160
2,824
192
156
209
540
58118
106
119
156
518
Source: Analysis of over 1,300 Chinese companies listed on domestic and international exchanges
Total debt balance by company and degree of leverage (net debt to EBITDA ratio)
RMB billion, 2016
Net debt / EBITDA:

10. Closing thoughts
• These slides are supporting materials for a LinkedIn article on China’s debt buildup:
https://www.linkedin.com/pulse/chinas-debt-time-bomb-ian-mombru
• Analysis based on publicly disclosed data of over 1,300 Chinese companies listed on
domestic and foreign exchanges
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