Non-financial corporate debt in emerging-market economies: trends, causes, risks and countermeasures

TAN Xiaofen1 LI Yuan1

(1.School of Finance, Central University of Finance and Economics)

【Abstract】The rapid accumulation of non-financial corporate debts in the emerging-market economies (EMEs) in the wake of the global financial crisis and their potential risks have aroused attention from and triggered concerns in the academic and policymaking circles. The rising concerns have come from, apart from the deteriorating macroeconomic fundamentals and corporate financial conditions of the EMEs, the expectation that the global financial conditions will turn from extraordinarily easy to tight. As the developed countries, such as the US, exit from their quantitative easing monetary policy, the rising global interest rates will put more debt repayment pressure on EMEs enterprises, especially those that have issued dollar-denominated debt. Although most of the EMEs enterprises currently may not face an imminent danger of falling into a debt crisis, given their deteriorating financial conditions, they have been pushed onto the brink of bankruptcy. In addition, the rising macro leverage ratio and deteriorating corporate financial conditions have served as a time bomb for economic growth and financial stability of the EMEs. Therefore, it is necessary to take a series of measures to help the non-financial enterprises in the EMEs cut their leverage levels while maintaining their economic and financial stability.

【Keywords】 emerging-market economies; non-financial corporate debt; deleveraging;

【DOI】

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(Translated by LI Mengling)

    Footnote

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    [2]. [2] Between the end of September 2008 and the end of September 2017, the ratio of household sector debt to GDP in EMEs increased from 20.7% to 38.9%, the ratio of government sector debt to GDP rose from 32.0% to 48.5%, and the ratio of non-financial corporate sector debt to GDP rose from 57.0% to 104.3%. [^Back]

    [3]. [3] The Federal Reserve has completed its first interest rate hike since the financial crisis in late 2015, ending its seven-year zero interest rate policy and marking the beginning of the gradual normalization of its abnormal monetary policy. [^Back]

    [4]. [1] The EMEs include such countries as Argentina, Brazil, Chile, China, Colombia, the Czech Republic, Hungary, India, Indonesia, Israel, the ROK, Malaysia, Mexico, Poland, Russia, Saudi Arabia, Singapore, South Africa, Thailand and Turkey. See https://www.bis.org/statistics/totcredit/credpriv_doc.pdf [^Back]

    [5]. [2] Based on data availability, the economies in crisis before the Asian financial crisis selected in this paper include the ROK, Singapore and Thailand. [^Back]

    [6]. [1] Pomerleano, M., “Corporate Finance Lessons from the East Asian Crisis,” The World Bank Group Discussion Paper 155, 1998. [^Back]

    [7]. [1] The financial system of G4 provides a large part of global credit, and the cross-border bank loans of G4 to other countries in the world are 20% higher than the cross-border bank loans to G4 from the rest of the world (International Monetary Fund, “Global Liquidity Issues for Surveillance,” IMF Policy Paper, 2014), which does not consider the role of G4 as an international financial center. [^Back]

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    [10]. [2] Bruno, V. and Shin, H. S., “Global Dollar Credit and Carry Trades: a Firm-level Analysis,” Review of Financial Studies, 2017 (3), PP: 702–749. [^Back]

    [11]. [3] Claudio Borio, C. and Zhu, H., “Capital Regulation, Risk-taking and Monetary Policy: A Missing Link in the Transmission Mechanism?” Journal of Financial Stability, 2012 (8), PP: 236–251. [^Back]

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    [15]. [3] The credit-to-GDP gap refers to the balance between the ratio of the credit scale of non-financial enterprises to GDP and its long-term trend. [^Back]

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    [17]. [1] Tran, H., Gibbs, S., Tiftik, E. et al. Financial Market Research (金融市场研究), (5): 121–124 (2015). [^Back]

    [18]. [2] Demirci I., Huang J., Sialm C., “Government Debt and Corporate Leverage: International Evidence,” NBER Working Paper, 2017. [^Back]

    [19]. [3] Countries in crisis on the eve of the Asian financial crisis include Indonesia, Malaysia, the Philippines, the ROK and Thailand. [^Back]

    [20]. [1] The lower the Z-value is, the higher the financial vulnerability of the enterprise is, and the greater the possibility of bankruptcy will be. If the Z-value of the enterprise is greater than 6.25, it is considered to be in a safe area. If the Z-value is between 3.75 and 5.85, the enterprise is considered to be in a gray area. If the Z-value is less than 3.75, the enterprise is considered to be in a crisis area. [^Back]

This Article

ISSN:1007-0974

CN: 11-3799/F

Vol , No. 05, Pages 61-77+5

September 2018

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Article Outline

Abstract

  • 1 Trends of debt problems of the non-financial corporate sector in EMEs
  • 2 Causes of the debt problems of non-financial corporate sectors in EMEs
  • 3 Debt risk of non-financial enterprises in EMEs
  • 4 Policy implications
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