China's largest companies on track despite sign of slowdown

26 Sep '06

3 min read

Nevertheless, most of China's leading companies are still in a strong financial position to expand and succeed in a fast-changing and increasingly competitive environment. Overall, the median financial ratios of China's top 200 corporates were strong in 2005.

The median EBITDA interest cover ratio was 7.6x, compared with 9.4x in 2004, while 41 percent of companies ended 2005 in a net cash position.

"A lot of this cash will be used to pursue acquisitions and other growth opportunities. This could lead to further consolidation and more overseas investments."

"While it is natural for companies to want to expand, such activity can expose them to significant operating risks that could compound financial risk," said Mr. Bailey. The difficulties TCL Corp. and Lenovo Group Ltd have had with overseas acquisitions highlight the risks of entering new markets.

Overall, there are many reasons to be cautiously optimistic about the long-term outlook for industrial corporations in China. But it remains a classic emerging market, with all the hidden dangers and opportunities. Some companies will not survive the race; others will emerge as global competitors, which could have significant ramifications in shaping offshore markets.

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