China’s zero-Covid stance could worsen debt problems for companies

CNBC reports that ratings giant S&P Global Ratings said that China’s zero-Covid approach could worsen the debt situation of the country’s companies.

The firm warned that the global resurgence of Covid and China’s zero-tolerance approach may further strain companies if outbreaks continue to lead to mobility restrictions and disruptions broadly.

“COVID-19′s latest resurgence in China came at a time when risks are rising for Chinese corporates,” analysts at S&P Global Ratings wrote.

“Higher leverage, weaker cash flows, tighter liquidity, and volatile financing conditions are biting. And all this is occurring amid unprecedented distress events and regulatory actions,” they said.

While the number of infections are still low compared to other major economies, China had demonstrated zero tolerance toward any surge in cases.

In response to the latest rebound in cases, the Chinese government embarked on a raft of measures, imposing mass testing in some cities, entry and exit controls in Beijing, and other restrictions.

S&P Global Ratings said that while the measures were effective in driving down cases, it also showed that even just a targeted response led to disruptions across large parts of the country.

S&P Global Ratings said that ratings for firms going forward could be pushed “further into the negative” if outbreaks continue to disrupt the country.