articles Ratings /ratings/en/research/articles/200116-china-corporate-outlook-2020-steep-walls-few-catapults-11309757 content
Log in to other products

Login to Market Intelligence Platform


Looking for more?

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List

China Corporate Outlook 2020: Steep Walls, Few Catapults


The Energy Transition And COVID-19: A Pivotal Moment For Climate Policies And Energy Companies

Beyond The Buzz: Climate Change Diplomacy With Christiana Figueres


S&P Global Ratings Lifts Price Assumptions For Most Metals


COVID-19 Impact: Key Takeaways From Our Articles

China Corporate Outlook 2020: Steep Walls, Few Catapults

Credit risk, including default risk, remains high in China. S&P Global Ratings has a negative bias on most sectors in our rated portfolio, meaning that credit downgrades are more likely than upgrades in 2020. This factors in refinancing uncertainty, especially for speculative-grade issuers, whose exposure to U.S.-dollar denominated debt has increased in recent years. In some cases, negative outlooks are prompted by flagging support amid weakening appetite for bailing out troubled government-related firms.

Maturity walls will edge higher this year, on the back of last year's record step-up. Stronger borrowers will get a little help climbing these walls. Their debt serviceability will increase due to stabilizing leverage and accommodative monetary settings.

However, there are few catapults for the weakest borrowers. Risk aversion will complicate efforts to refinance lower speculative-grade issuers. The rising default rate is contributing to wider spreads at the lower end of the credit spectrum.

Default Risk Remains Elevated

Onshore defaults in 2019 topped Chinese renminbi (RMB) 130 billion (US$18.75 billion), exceeding the total amount of 2018. We expect corporate defaults to rise again in 2020, given tight refinancing conditions for weaker borrowers.

Effective onshore maturities (including bond puts) could rise to RMB6.5 trillion this year (assuming all puttable bonds will be exercised), versus RMB6.3 trillion in 2019 (see chart 1). This doesn't include short-term debt that will be issued in the course of 2020 and come due before the year is over. By sectors, local government finance vehicles (LGFVs) still face the highest maturity wall in 2020 with about RMB2 trillion, composing over 35% of total maturities (see chart 2).

Chart 1


Chart 2


Offshore maturities will rise slightly this year from 2019's US$89 billion, then jump in 2021. As such, maturities (including puttable bonds) will exceed US$200 billion over both 2020 and 2021 (see chart 3). Refinancing risk could be a headache for offshore issuers during the next three years, especially considering last year's tightening policy on offshore issuance for property firms and LGFVs. Furthermore, the higher maturity wall for lower-rated or non-rated issuers points to a higher default risk (see chart 4, and "China Bond Defaults: Becoming A Norm," Nov. 25 2019).

Chart 3


Chart 4


A Partial Trade Deal Will Not Resolve Risk Aversion

Investor sentiment could improve following the "phase 1" U.S.-China trade pact, signed On Jan. 15, 2020. Even so, containing financial risk will remain a key challenge for the Chinese government, given rising corporate defaults and the high-profile troubles at several banks in 2019, including Baoshang Bank Co. Ltd., Jinzhou Bank Co. Ltd., and Hengfeng Bank Co. Ltd. At a working conference this month, the People's Bank of China reemphasized the need to prevent and neutralize financial risk.

In our view, authorities will avoid a repeat of a punitive-style takeover or abrupt exit. The takeover of Baoshang in May 2019 led to widespread funding stress for small and midsize banks and companies, and risk repricing has lingered (see "China Credit Outlook: Liquidity Crunch Just The Latest Headache For Corporate Issuers", July 8, 2019). This enduring "flight to quality" will weigh on efforts to boost credit support and lower financing costs for small and midsize enterprises.

Companies will continue to rely on short-term funding in 2020. This is another result of the flight to quality, which makes lenders wary of long-term obligations, and encourages some to borrow short on the expectations that funding costs will come down. Most of our rated sectors have a weighted average maturity of less than three years, and for several sectors it is at or under two years.

We believe refinancing uncertainty will continue to be a top risk for weak firms. Shorter maturity profiles are credit negative, considering the median liquidity assessment is only 1.32x for the companies we rate. That is to say, we project liquidity sources to be only marginally sufficient to cover the liquidity uses of rated companies. Liquidity sources include cash balance, committed credit lines, funds from operations, working capital, contracted asset disposals or equity; liquidity uses include short-term debt, working capital, non-discretionary capital expenditure, and contracted purchases.

Chart 5


Chart 6


More Market-Based Resolution--Or More Tolerance For Default?

Chinese regulators recently released draft guidelines that, in our view, recognize the need to improve the post-default and recovery mechanism in China (see table 1). However, the guidelines do not have specific legal implications and punitive consequences of non-compliance, raising questions over whether they'll be followed.

The focus on post-default resolution also shows the government is increasingly willing to resolve distressed companies with market-based losses rather than unconditional bailouts. We expect the Chinese government to be increasingly tolerant of defaults including by state-owned enterprises (SOEs), as underlined the failure of Tewoo Group Co. Ltd. to meet debt obligations late last year (see "Landmark SOE Default In China Sets Stage For More," Dec. 11, 2019).

Table 1

New Guidelines Published After High-Level Summit On Bond Dispute Cases
On Dec. 24, 2019, China's Supreme Court held a meeting with the PBOC, Ministry of Justice, CSRC and others to discuss rising bond disputes. Some participants released documents or guidelines afterwards, reflecting the tone of the summit.
Document/guidelines Issuing authority Key highlight
Minutes of the multi-agency summit on bond dispute cases The Supreme People's Court Multiple departments established a resolution mechanism for disputes on recovery following bond defaults.
Notice On Matters Related To The Default Settlement Of Corporate Bonds (A Draft For Comments) PBOC, NDRC, and CSRC Key principles on default settlement laid out: to improve transparency and the clarity of market participants' right and responsibility. A "bondholders' committee" was put forward as a main mechanism for future default settlement.
Guidelines For Default And Disposal Of Debt Financing Instruments By Nonfinancial Companies In The Interbank Bond Market NAFMII Specifies the settlement options on defaults, including (for the first time) debt exchange and restructuring.
"Bondholder Meeting" Procedures on Debt-Financing Instruments for Nonfinancial Companies in the Interbank Bond Market NAFMII Specifies procedures and functions of the bondholders' committee.
Guidelines for Trustees of Debt Financing Instruments for Nonfinancial Enterprises in the Interbank Bond Market (Trial Version) NAFMII Specifies the selection requirement and responsibilities of bond trustee.
PBOC--People's Bank Of China. NDRC--National Development and Reform Commission. CSRC--China Securities Regulatory Commission. NAFMII--National Association of Financial Market Institutional Investors. Source: The Supreme People's Court, CSRC, and NAFMII.

Operating Performance Is Not Getting Worse

We project stable leverage for our rated entities in 2020. The deleveraging trend that began in 2016 is unlikely to get back on track, after stalling last year. However, things won't get worse, due mainly to slightly improving top lines. In some cases, these improvements come on the back of a low base after a rocky performance in 2019 for sectors such as auto/auto parts and high-tech. Stimulus policy and moderating trade tensions should also boost revenues in some sectors (see tables 2 and 4).

We estimate revenue will expand by a median 7.1% for our rated entities this year, compared with 6.5% in 2019 and 9.0% in 2018. The median EBITDA margin will likely remain stable in 2020 after decreasing to 20.7% in 2019, from 22.5% in 2018. These trends should allow for a mild recovery in debt serviceability to continue (see chart 7).

Table 2

Rated Portfolio Median Revenue Growth By Sector
Year-on-year percentage changes
2018 2019f 2020f
Auto/auto parts 8.0 (5.6) 2.4
Cap. goods/machinery & equip. 8.7 8.6 7.7
Chemicals 7.7 (7.6) 1.2
Consumer products (0.1) 2.9 4.5
High technology 21.9 7.2 16.5
LGFV (0.1) 8.9 6.6
Mining and minerals 2.9 (1.0) 2.2
Oil & oil petrochemicals 15.9 (7.9) (0.5)
Real estate 17.8 22.7 21.8
Restaurants/retailing 9.3 (1.9) 3.4
Transportation infrastructure 2.9 1.3 7.1
Utilities 9.1 3.9 5.1
f--forecast. Cap. goods--Capital goods. LGFV--Local government financing vehicle. Source: S&P Global Ratings.

Chart 7


We rule out a strong operating recovery for Chinese corporates in 2020, given the backdrop of economic uncertainty and tepid industrial demand (see chart 8). Our economics team estimates China's GDP growth will slow to 5.7% in 2020. Consumption growth, a favored economy driver, will likely subside as a result of slow employment growth and moderate wealth gains. Manufacturing investment may stabilize but a strong upturn is improbable. Cooling property activity will likely drag on investment growth, with some offset from infrastructure stimulus (see "Asia-Pacific Quarterly: The Cost Of Uncertainty," Dec. 2, 2019). However, high leverage in the economy and caution on adding more debt overhang will limit stimulus efforts (see chart 9).

Chart 8


Chart 9


Which Of Our Rated Companies Are Most Vulnerable?

Overall, times remain tough for China's corporate sector. High-quality companies have good funding access, but their capital needs are constrained by the country's economic slowdown. Weak companies are not getting financing at costs and durations needed for a sustainable capital structure.

Most rated sectors remain on a negative bias in 2020, as has been the trend for two years (see table 3). The few sectors with positive rating bias do not have a material representation within our rated coverage. Moreover, our target list is expanding of "weakest links"—i.e., issuers rated 'B-' or below and with negative outlooks or with ratings on CreditWatch with negative implications.

Table 3
Weightings And Outlook Biases For Sectors In Our China Portfolio
Sectors* Weighting in China universe (%) Outlook bias§ (%)
Auto/Auto parts 3.8 (33.3)
Cap goods/machine & equip 6.7 (19.0)
Chemicals 4.1 (15.4)
Consumer products 8.0 (28.0)
High technology 5.4 (17.6)
LGFV 5.7 (5.6)
Mining and minerals 10.8 (11.8)
Oil & petrochemicals 3.5 9.1
Real estate 23.9 0.0
Restaurants/retail 2.9 (11.1)
Transportation infrastructure 4.8 (6.7)
Utilities 9.6 (10.0)
*Issuers based in mainland China only. Data as of Dec. 31, 2019. §We subtract positive from negative outlooks and CreditWatch placements to arrive at our outlook bias. Note: Weightings do not add up to 100% because we only show weightings for more material sectors.

Table 4


Chart 10


Table 5

Our List Of Weakest Links And Potential Fallen Angels
Potential fallen angels Rating Outlook Sector

Beijing Capital Group Co. Ltd.

BBB- Negative Real estate

Xinjiang Goldwind Science & Technology Co. Ltd.

BBB- Negative Capital goods/machinery & equipment

Zijin Mining Group Co. Ltd.

BBB- CreditWatch Neg Mining/minerals
Weakest links Rating Outlook Sector

Pearl Holding III Ltd.

B- Negative Auto/auto parts

GCL New Energy Holdings Ltd.

B- Negative Utilities

Elion Resources Group Co. Ltd.

B- Negative Chemicals

YanAn Bicon Pharmaceutical Listed Co.

CCC+ Negative Consumer products

Yihua Enterprise (Group) Co. Ltd.

CCC Negative Consumer products

Tunghsu Group Co. Ltd.

CCC- CreditWatch Neg High technology

Sunshine 100 China Holdings Ltd.

CCC+ Negative Real estate

Yida China Holdings Ltd.

CCC- Negative Real estate

Oceanwide Holdings Co. Ltd.

CCC+ Negative Real estate

Panda Green Energy Group Ltd.

CC CreditWatch Dev Utilities
Note: Weakest links are issuers rated 'B-' or lower with either a negative outlook or the ratings are on CreditWatch with negative implications. Potential fallen angels are issuers rated 'BBB-' with either negative outlooks or the ratings are on CreditWatch with negative implications. LGFV--Local government financing vehicles. CreditWatch Neg--CreditWatch with negative implications. CreditWatch Dev.--CreditWatch with developing implications. Data as of Dec. 31, 2019. Source: S&P Global Ratings.


Related Research

  • Landmark SOE Default In China Sets Stage For More, Dec. 11, 2019
  • Asia-Pacific Quarterly: The Cost Of Uncertainty, Dec. 2, 2019
  • China Bond Defaults: Becoming A Norm, Nov. 25 2019.
  • China Credit Outlook: Liquidity Crunch Just The Latest Headache For Corporate Issuers, July 8, 2019

This report does not constitute a rating action.

China Country Specialist:Chang Li, Beijing + 86 10 6569 2705;
Primary Credit Analyst:Cindy H Huang, Hong Kong (852) 2533-3543;
Secondary Contacts:Alex Yang, Hong Kong + 852 25333057;
Boyang Gao, Beijing (86) 10-6569-2725;

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, (free of charge), and and (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at

Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: