(Yicai Global) June 19 -- Some 15 percent of Chinese enterprises' 'interest coverage ratio' (ICR) is less than 1, meaning those Chinese firms are still borrowing new loans to repay the old ones, said Zhu Min, a former deputy managing director of the International Monetary Fund (IMF), during a conference on 'Managing Increasingly Complex Financial System and the China Financial Risk and Stability Report (CFRSR)' yesterday.
Correlation change of the current global financial markets shows that internal correlation is strengthening, Zhu suggested, adding that China needs to be vigilant of the impact of external economic and financial fluctuations on its economy and finance.
The financial risk and stability report suggests that from the fourth quarter of 2015 to the first quarter of 2017, China's external financial contagion risk, market and liquidity risk and risk appetite rose further, while macroeconomic risk and credit risk declined.
China's financial risk is at a high level, the report claims, pointing to China's overall debt level. On the micro side, interest payments on corporate debt remain serious. Liquidity and market interest rates are tense, it says, claiming high level financial risk could cause problems if China is faced with external shocks. Therefore, the country should guard against the impact of external economic and financial fluctuations on China's economy and finance, Zhu pointed out.
Interest coverage ratio of 1-2 is a high-risk stage, while over 2-3 is the normal level. Data show that the overall level of China's debt is high. About 15 percent of enterprises' ICR is less than 1, and 15 percent of enterprises are borrowing new loans for repaying old ones, Zhu noted, adding that when the external risk pressure exists, this 15 percent would expand. Therefore, the micro risk should not be underestimated, he added.