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China’s zero-covid stance could exacerbate corporate debt problems

On July 5, 2021, people are lining up to undergo a nucleic acid test for the Covid-19 coronavirus in Ruili, which borders Myanmar in southwestern Yunnan, China.

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China’s zero-covid approach could exacerbate the debt situation of a country’s businesses, some of which are already in financial difficulty, said rating giant S & P Global Ratings.

In a report last week, the company warned that Covid’s global resurgence and China’s zero-tolerance approach could put additional strain on businesses if the outbreak leads to widespread mobility limitations and turmoil.

“The recent resurgence of COVID-19 in China happened at a time when Chinese companies were at increased risk,” said an analyst at S & P Global Ratings.

“Increased leverage, declining cash flow, tight liquidity and volatile funding are all in the face of unprecedented distress and regulatory action,” they said. ..

The need to manage repeated episodes of outbreaks and blockades under the zero COVID approach has not yet fully recovered, adding an additional burden to companies in countries with weakened credit trends.

According to Our World in Data, Covid cases across China increased in July and August, with a seven-day moving average of over 110 cases in August. This was a range that had not been seen since January, when the number of cases exceeded 120. Infection was controlled before the July surge, but decreased to 7 cases on a 7-day moving average in March.

Although the number of infections is still low compared to other major economies, China has shown zero tolerance for the surge in cases.

August, country Close the key terminal of Ningbo Fengshan Port — The third busiest port in the world — after one worker was infected with Covid-19. At the beginning of June, Covid infection Transportation hub in southern China, Including major ports in Shenzhen and Guangzhou — China is the first to shut down ports due to the Covid incident.

Debt suffering of China’s largest company

In response to the backlash from recent incidents, the Chinese government Started a series of measures, Mass testing in some cities, access control in Beijing, and other restrictions.

While the measure was effective in reducing incidents, the S & P Global Ratings also showed that targeted responses alone caused confusion in most parts of the country.

“The need to manage repeated episodes of outbreaks and blockades under a zero COVID approach has not yet fully recovered, adding an additional burden to companies in countries with weakened credit trends,” S & P said. The report said.

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China’s largest non-performing loan manager, Huarong Asset Management, suffered from investment failures, causing a plunge in bonds after failing to submit earnings earlier this year, causing a market crash.

S & P Global Ratings said future corporate ratings could be pushed up “more negatively” if outbreaks continue to confuse the country.

Rating agencies have identified larger sectors at risk of downside in that they have a negative rating first. This includes automobiles, real estate, media, leisure and local government financing tools (company owned by local governments in China established to fund public infrastructure projects).

— CNBC’s Yen Nee Lee contributed to this report.

China’s zero-covid stance could exacerbate corporate debt problems

Source link China’s zero-covid stance could exacerbate corporate debt problems

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