- Operating cash flow margin has fallen by 65% since 2002
- Total liabilities % of equity has risen by 60%
- Financial leverage has risen by 26%
- Total non-financial working capital (which is (Current Accounts-Cash)+(Current Liabilities-Short-term Debt), and used to detect “channel stuffing”) has risen by 105%
- Net debt is flat (which makes us question the validity of the "Cash" line on Chinese balance sheets)
We are not making a judgment on whether this is sustainable or opining on what kinds of problems this buildup in leverage might create, just observing that certain important measures of profits and leverage have shown persistent deterioration since 2002, and especially since 2009.
Moreover, when comparing the most recent data point across various other Asian EMs it is clear that Chinese companies in aggregate are more levered than their Asian peers, except for Indian companies. The reliance on working capital by Chinese firms to finance sales could be considered high, at least.