Corporate bankruptcies 'set to rise by 50% in China over next 2 years'

Sectors at risk of bankruptcy include construction, metals and mining, low-end manufacturing and export related industries.
Sectors at risk of bankruptcy include construction, metals and mining, low-end manufacturing and export related industries.PHOTO: AFP

SINGAPORE - Corporate bankruptcies in China are set to rise by about 50 per cent over the next two years, according to trade credit insurance provider Euler Hermes.

Corporate insolvencies will increase by 25 per cent this year and another 20 per cent next year, the firm said in a research report.

Sectors at risk include construction, metals and mining, low-end manufacturing and export related industries.

The construction sector in particular is struggling with downward price pressures, large overcapacity and weak demand prospects, the report said.

A private survey of China's factory sector out on Wednesday (Sept 23), unexpectedly shrank to a 6-1/2 year low in September, raising fears of a sharper slowdown in the world's second-largest economy. The preliminary Caixin China manufacturing purchasing managers' index (PMI) fell to 47.0 in September, the worst since March 2009 and below market expectations of 47.5 and August's final 47.3. Levels below 50 signify a contraction..

Euler Hermes economists Mahamoud Islam and Ludovic Subran expect the Chinese economy to expand 6.8 per cent this year and 6.5 per cent next year. China's official growth target is around 7 per cent.

The country is suffering from lower growth in exports and investment, a less favorable financing mix and prevailing deflationary pressures, they said.