DALIAN, Sept. 11 (Xinhua) -- We may be half a year from its release but a government plan that will set the course for China's economic and social development in the coming five years was a hot topic at the Summer Davos forum this week.
The five-year plan, China's 13th, is considered strategically important as it is crucial to China's goal of realizing "a moderately prosperous society in all respects by the centennial anniversary of the founding of the CPC in 2021."
China is also aiming to double its 2010 GDP and people's income by 2020. The quality of the next five-year-plan will, to a large extent, decide whether these grand goals are achievable.
Drafting of the plan started in April last year. It will be discussed during a key policy meeting in October and made effective during the annual session of China's top legislature in March.
And then in 2014, everything just falls apart. Quote Macquarie, "more than half of the cumulative debt in this sector was EBIT-uncovered in 2014, and all sub-sectors have their share in the uncovered part, particularly for base metals (the big gray bar on the right stands for Chalco), coal, and steel."
Compared with the situation in 2013, while almost all sub-sectors did worse in 2014, but things appear to have worsened faster for coal companies as more red bars have moved beyond the 100% critical level for EBIT-coverage.
It means that last year about CNY2 trillion in debt was in danger of imminent default.
The situation since than has dramatically deteriorated.
So are we now? Macquarie again: "Given the slumps in metal and coal prices so far this year, it’s quite likely the curve will have deteriorated further for commodity firms this year, with total debt getting better in the meantime."
In other words, it is safe to assume that up to two-third of Chinese commodity companies are now at imminent danger of default, as they can't even generate the cash to pay down the interest on their debt, let alone fund repayments.
We fully expect this to be the source of the next market freakout: when the punditry turns its attention away from macro China, which has more than enough problems to begin with, and starts to focus on the cash flow devastation in China at the micro, or corporate, level.