State-owned enterprises leverage: The case of the People’s Republic of China

Manila – The size of the state-owned enterprise contingent liability in relation to the People’s Republic of China’s gross domestic product appears to be manageable if dealt with decisively and bar a continuation of the past.

ADBThe leverage of state-owned enterprises (SOE) in the People’s Republic of China (PRC) has grown to a large liability. While there is no room for complacency, there is no need for panic either; even if authorities had to step in to mop up as much as 20% of SOE debt at risk gone bad. This would appear to be manageable at roughly 2.7% of the gross domestic product in 2016 or 5.5% by 2021. The paper demonstrates a method to include SOE debt as a contingent liability in the public debt sustainability assessment framework. The authors of the paper further conclude that while corporate leverage is large, it appears fully manageable.

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