China’s downturn is spreading to the sectors and companies that were expected to withstand the slowdown and drive growth in the region.
Financial Times analysis shows that a third of publicly listed Chinese companies suffered cash outflows in the quarter to the end of June as the combined effect of the slowdown in exports , a build-up in stocks and tightening local government finances begins to bite.
Cash balances at a tenth of 1,700 companies analyzed by the FT using data from S&P Capital IQ have turned negative in the past two quarters.
For a further 6 percent of companies that normally report an outflow, the outflows were worse than last year.
The results highlight that even the companies that are expected to help rebalance China away from an investment-driven economy – such as consumer and retail businesses, healthcare, pharmaceuticals and electronics companies – are being affected by the slowdown, along with construction, real estate, industrial machinery and chemicals.
Increasing numbers of hedge funds and analysts are looking closely at cash flow data as sustained poor cash flows would have a big impact on companies’ ability to service their debt and hence on the health of China’s banking sector.
There are some signs that the cash crunch has already been felt by banks during the first half of the year.
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