"Jan-May Chinese Corporate Debt Surges by 1,300 Trillion Won... Increased Corporate Funding Demand Amid Uncertainty"

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[Asia Economy Reporter Kim Eun-byeol] Due to the impact of the novel coronavirus infection (COVID-19), the scale of corporate debt in China has significantly increased.

According to the Bank of Korea's 'Overseas Economic Focus' on the 21st, the scale of yuan-denominated loans to Chinese companies increased by 7.8 trillion yuan (approximately 1,333 trillion won) from January to May this year. This is a much larger increase compared to 5.4 trillion yuan during the same period last year and 4.2 trillion yuan in 2018.

The net issuance of corporate bonds also increased significantly from January to May. The net issuance of corporate bonds, which was around 1 trillion yuan in 2018, rose to 1.4 trillion yuan in 2019 and reached 3 trillion yuan this year.

The Bank of Korea stated, "With concerns over the resurgence of COVID-19 and increased uncertainty related to the passage of the Hong Kong National Security Law and the intensification of US-China trade conflicts, corporate demand for funds is expected to steadily increase."

In particular, the Chinese government plans to strengthen financial support for companies, focusing on small and medium-sized enterprises (SMEs). The People's Bank of China announced on the 2nd that it would inject 440 billion yuan to support the extension of loan principal and interest maturities for SMEs and expand bank lending.

Meanwhile, tensions in Hong Kong have escalated since China passed the draft of the Hong Kong National Security Law at the National People's Congress (NPC) on the 28th of last month. According to the Hong Kong South China Morning Post (SCMP), the Standing Committee of the NPC is expected to announce specific laws to be added to the annex of the Hong Kong Basic Law around August. In response, the United States has warned of revoking Hong Kong's special status and hinted at additional sanctions.

The Bank of Korea said, "The level of US response is expected to be determined by the degree of control imposed by the final enforcement of the Hong Kong National Security Law," adding, "At present, considering the backlash from US financial companies operating in Hong Kong and the political schedule, it is assessed that the US is moderating the level of sanctions mentioned."

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