The debt crisis appears to have receded in the West, but what if it has merely shifted? Nonfinancial companies in emerging markets have been on a borrowing binge for the past five years. Cross-border bank borrowing, traditionally the biggest source of international funding for emerging-markets companies, has risen by 42 percent since the end of 2009, to $1.29 trillion at the end of March, while international debt issuance has surged by 229 percent, to $1.04 trillion.
China leads the new leveraging race: Its companies had racked up debts worth more than 105 percent of gross domestic product at the end of 2013. More than 90 percent of that was domestic debt. That won’t ease any concerns about a debt bubble in China, but Beijing has plenty of resources to bail out companies. Other countries are more vulnerable to a cutoff of international funding. More than three quarters of Hungarian corporate debt, which stands at 102.6 percent of GDP, is owed abroad. The financing required by emerging-markets companies to roll over their debts will rise from $90 billion in 2015 to $130 billion in 2017 — a period when the Federal Reserve is expected to be raising rates, making money scarcer. A new debt squeeze may be looming.
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