The Chinese corporate bond market has overtaken the U.S. market as the world's biggest and is set to soak up a third of global company debt needs over the next five years, according to rating agency Standard & Poor's, underscoring the growing risk China's debt market is imposing on the global financial system,Reuters reported.

 

Chinese corporate borrowers owed $14.2 trillion at the end of 2013 versus $13.1 trillion owed by U.S. corporations, with the switch in rankings taking place a year earlier than it had expected, S&P said today.

 

The Asia-Pacific region, led by China, is seen accounting for half of global corporate debt financing needs of $60 trillion over the five-year period to 2018 when the region will account for more than half the projected total debt outstanding of $72 trillion.

 

China, the world's second-largest economy, is currently financing a quarter to a third of its corporate debt through its "shadow banking" sector, and this has global implications, S&P said.

 

"This means that as much as 10 percent of global corporate debt is exposed to the risk of a contraction in China's informal banking sector," the agency said, estimating this at $4 trillion to $5 trillion. "With China's economy likely to grow at a nominal 10 percent per year over the next five years, this amount can only increase."

 

Cash flows and leverage at Chinese corporations are the worst among global peers, having deteriorated from being the best in 2009, according to a corporate financial risk trend measure used by Standard & Poor's.