Debt data shines light on credit risk

Chinese enterprises held over $14.2 trillion in accumulated debt by the end of 2013, surpassing the $13.1 trillion owed by US businesses and representing nearly one-third of the world's total corporate debt obligation, according to recent media reports.

In response to this startling figure, many international bodies are sounding the alarm about the potential risks associated with China's ongoing corporate borrowing binge.

Central authorities in China must take these warnings seriously. Although many domestic enterprises secure funding through bank loans and bond issuances, those which cannot access these debt channels often turn to the lightly regulated shadow banking sector where high interest rates only raise the possibility of default.

Complicating matters is the fact that some local governments have been known to obscure the debts of enterprises in their jurisdictions in order to bolster their economies. Such behaviors not only add a new layer of uncertainty to an already fraught situation, they do nothing to promote the healthy development of domestic enterprises over the long term.