Fri, Jul 09, 2010 - Page 12 News List

S&P warns on non-techs’ reliance on China market

‘DOUBLE-EDGED SWORD’ The ratings agency said that wider exposure to the Chinese market could translate into increased demand, but also raise long-term credit risks

By Joyce Huang  /  STAFF REPORTER

Domestic non-technology businesses’ reliance on the Chinese market could increase their business risks, Standard & Poor’s Ratings Services said yesterday.

“Some [non-tech] businesses’ increasing exposure to the China market may be a double-edged sword that increases demand for products and raises long-term credit risks,” credit analyst Frank Fan (范維康) said in a report, titled Taiwan’s nontech firms have stable credit outlooks, but their reliance on China could increase business risks.

Local non-tech firms are increasingly reliant on Chinese demand for their products, in contrast to high-tech companies, which mainly use China as a low-cost production base, Fan said.

That increases the risk that an unexpected drop in demand from China or non-tech firms’ aggressive expansion plans could pressure their credit metrics, the report said.

FAST RECOVERY

The ratings agency said the key credit metrics of most of the nation’s non-tech firms had recovered faster than those of their global peers over the past six months — a trend it said was likely to continue this year.

The ratings agency said it expected the global economy’s gradual recovery would also support a stable outlook for most Taiwanese non-tech firms over the next few quarters.

“We expect Taiwan’s competitive low costs to support further recovery in the credit profiles of local nontech firms” this year, Fan said in the report.

CREDIT PROFILES

The report added that the credit profiles of local transportation companies had stabilized in the past few quarters, after a significant decline in their creditworthiness during the global recession.

“We expect increased freight rates, higher shipping volume, and the deferral or cancellation of new ship orders to support shipping companies’ profitability and cash flow over the next few quarters,” the analyst said.

Warming economic relations between Taiwan and China may also help improve the operating performance and credit metrics of the nation’s leading air carriers, he said.

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