In the ever-evolving landscape of global economics, few stories have been as remarkable as China's rise to become an economic superpower. In just a short 50 years, China emerged as a global leader in manufacturing and redefined the dynamics of the global supply chain.

In today's interconnected world, it's hard to find a corporation that isn't inextricably linked to China in some way, whether it's the manufacturing of products, the sourcing of vital components, or playing a critical role in supply chains. However, the post-pandemic era has brought about new and significant complexities. China’s central policies and other factors have weakened its economy, and these changes are rippling across the globe. Companies worldwide, who are dependent on suppliers and critical manufacturers based in China, now find themselves grappling with newfound risks and uncertainties.

Although China’s economic decline has been making headlines only recently, RapidRatings has been alerting our clients to China’s downfall since the very early days of the pandemic.

Capturing China's Economic Downturn: Insights from RapidRatings

At the core of China's economic decline lies the deteriorating financial health of companies operating within its borders, many of which are pivotal players in global manufacturing for global corporations.

At RapidRatings, we have the proprietary financial health data on both the public and private companies within China.

• As shown in the graph above, the trajectory of Core Health (CHS)—reflecting medium-term operational efficiencies—has steadily declined over the past couple of years.
• The state of Financial Health (FHR), gauging the probability of short-term default, has also seen a significant decline.

The year-over-year risk concentration shows the same story.

• Very Low-risk companies, with an FHR of 80 and above, are sharply declining, making up just 14% of China’s corporate landscape.
• Medium to High-Risk firms, with FHRs of 60 and below, are becoming the dominant category. This transformation highlights the distressing risk concentration within China.

Broader Insights: Looking at Other Asian Countries

China's decline becomes even more pronounced when compared to its Asian counterparts, where companies, in general, exhibit greater financial strength and health.

• The FHRs and CHSs of both public and private companies in Asia have experienced an uptick since the pandemic downturn, or at the very least, have remained stable.
• As shown in data on the bottom figure, risk concentration in Asian countries primarily resides in the Low-Risk category, comprising 31.4% of all companies.
• This aligns with their steady recovery, marked by a decrease in High-Risk companies and a slight uptick in Low-Risk companies.

Staying Ahead of Global Risks with the Power of Data

China's economic transformation underscores the importance of enacting due diligence on the companies that touch your business, most notably when those companies are confronted with geopolitical issues, such as currency fluctuations, policy changes, and economic downturns. While outsourcing your supply chain to other countries has many advantages, including cost effectiveness in manufacturing and the ability to obtain hard-to-get parts, it also opens your company up to risk.

As the world economy changes, RapidRatings can protect your business from emerging risks. We arm our clients with unmatched predictive data accuracy and financial health insights, enabling them to navigate global risks with confidence.

To learn more, read our latest eBook which delves into strategies that Supply Chain Leaders can adopt to conquer the challenges of globalization, remain vigilant, and stay ahead of risk.

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