Chinese companies 'need to reduce leverage'

A recent JPMorgan report recommended that Chinese firms raise external equity and improve operational efficiency to rebalance their long-term capital structures.

The report, released on Wednesday, found that Chinese firms are some 50 percent more leveraged than their global counterparts. These companies have only a third or less of their debt in the form of bonds, compared with firms in the other global markets that have 80 to 90 percent of their debt in bonds. A greater reliance on loans may be restrictive in terms of market capacity, tenor and covenants, although loans are often associated with lower interest rates.

Moreover, Chinese firms have a lot more short-term debt than their global peers. The weighted average debt maturity is 1.9 years for firms listed in Shanghai and Shenzhen versus about nine years for large US firms.