Corporate debt has been rising significantly in some countries due to the coronavirus pandemic, according to figures by the Bank for International Settlements. The data is currently only available through 2020’s second quarter but already shows the negative trend quite starkly. Debt is increasing most in countries where corporate debt was already at a high level before the crisis, for example France, China, Japan and South Korea.
The high level of debt in France results from the fact that many companies are taking out loans due to low interest rates. Corporations in the country have been struggling with debt for a while amid falling profit margins, weak growth and high taxes as well as social security contributions, according to media reports.
Corporate debt is also high in China and has increased significantly since 2007. This development appears all the more worrying as it is happening despite strong GDP growth. The very high level of debt can restrict the scope of action for Chinese companies in the current crisis. Nevertheless, the Chinese government is encouraging banks to keep giving out cheap loans to companies, which could increase the number of bad loans on the banks' books. Because of these developments, observers have been questioned the stability of the Chinese banking system.
In other emerging economies such as India, Brazil and Indonesia, corporate debt is at a comparatively low level. According to BIS data, it has not increased significantly in recent years.