2017 Annual Greater China Corporate Default Study And ... · 'AA-/A-1+' on Sept. 21, 2017. The outlook is stable, reflecting S&P Global Ratings' view that China will maintain its

Default, Transition, and Recovery:

2017 Annual Greater China Corporate Default StudyAnd Rating TransitionsAugust 15, 2018

The tally of corporations rated by S&P Global Ratings in Greater China (China, Hong Kong, Macau,and Taiwan) continued to grow rapidly in 2017, adding 63 issuers--an increase of 14% from 2016.Ratings in Greater China continue to lean toward investment grade ('BBB-' or higher), with amedian rating of 'BBB', compared with a median rating of 'BB' in the U.S. Approximately 80% of'BBB' rated issuers in Greater China did not experience rating changes within one year, onaverage, between 2000 and 2017, compared with about 60% of 'BB+' rated issuers. This alignswith our expectation of comparatively stable credit quality in 2018 for the Greater China issuersrated by S&P Global Ratings.

However, a number of key risks remain--namely, deleveraging, trade tensions, and growth ofhigh-risk assets. Deleveraging has resulted from China's rapid credit growth over the past severalyears, which has been deemed unsustainable; unwinding and reducing leverage will requiredelicate care to avoid market destabilization. A combination of a strong dollar and rising interestrates in the U.S. may also contribute to asymmetric credit outflows from Greater China, whichcould exacerbate the deleveraging risk, since utilizing external capital is one of the Chinesegovernment's tools to help stabilize the process of deleveraging. Additionally, high debt leveragein the corporate sector may compound this risk.

Meanwhile, escalating trade concerns do not seem to be abating as Washington and Beijingcontinue to trade tariffs on each other's goods and services. Further, there has been some growthof new issuers in the speculative-grade (rated 'BB+' and below) segment, which is sizably moresensitive to macro shocks than the investment-grade category. As macro risks become morepronounced, these issuers are more likely to be downgraded, or even default, due to thesesensitivities.

Default, Transition, and Recovery:

2017 Annual Greater China Corporate Default StudyAnd Rating TransitionsAugust 15, 2018

GLOBAL FIXED INCOME RESEARCH

Diane Vazza

New York

(1) 212-438-2760

[email protected]

Sudeep K Kesh

New York

(1) 212-438-7982

[email protected]

Xu Han

New York

(1) 212-438-1491

[email protected]

RESEARCH CONTRIBUTORS

Sundaram Iyer

Mumbai

[email protected]

Daniel Sek

New York

(1) 212-438-3707

[email protected]

www.spglobal.com/ratingsdirect August 15, 2018 1

mailto: [email protected]










Overview

- One company defaulted in Greater China in 2017, the same as in 2016, compared with ahigh of six defaults in 2015. The one-year speculative-grade default rate in 2017 was0.19%.

- The tally of corporations rated by S&P Global Ratings in Greater China (China, HongKong, Macau, and Taiwan) continued to grow rapidly in 2017, adding 63 issuers--anincrease of 14% from 2016.

- Ratings in Greater China continue to lean toward the investment-grade category, whichtends to experience far fewer rating transitions than the speculative-grade segment.Nearly 74% of credit ratings in 2017 were unchanged, though among those that didchange, downgrades were twice as common (11.3%) as upgrades (5.2%).

- The 2017 one-year Gini coefficient for rated Greater China corporate issuers was86.94%, compared with 82.39% globally. This shows the credit ratings' strong ability todifferentiate credit risk in the region. State-owned enterprises (SOEs) showed a veryhigh Gini coefficient of 98.94%, whereas non-SOE companies had a Gini coefficient of83.08%.

China's prolonged period of strong credit growth has increased its economic and financial risks,and S&P Global Ratings thus lowered its sovereign credit ratings on China to 'A+/A-1' from'AA-/A-1+' on Sept. 21, 2017. The outlook is stable, reflecting S&P Global Ratings' view that Chinawill maintain its robust economic performance and improved fiscal performance in the next threeto four years.

In this study, S&P Global Fixed Income Research examines the ratings performance of 861 GreaterChina-based issuers rated by S&P Global Ratings. Entities included in this study are those withbusiness operations in Greater China, regardless of the country in which they are incorporated. Ina number of instances, entities included in this study are incorporated in foreign tax havens likethe Cayman Islands. While S&P Global Ratings did rate issuers in Greater China prior to 2000, welimited the scope of analysis to issuers rated from 2000-2017. The statistics we present in thisstudy refer only to the corporate ratings universe, which includes financial and nonfinancialentities in Greater China. Our methodology and the definitions of the terms we use in this studyare in Appendix I.

Our study found that higher ratings correspond with stronger ratings stability for bothstate-owned enterprise (SOE) and non-SOE issuers. Due to their strong relationship with thesovereign, however, SOE issuers in Greater China had slightly lower stability rates across mostrating categories in 2017, after the downgrade of China had knock-on effects for a number of SOEcorporate issuers.

As of the end of 2017, 69% of rated issuers in Greater China were rated investment grade,compared with 51% globally, 44% in the U.S., and 59% in Europe. This distinction is particularlyimportant in China because ratings also correspond strongly to the cost of debt: The higher therating, the lower the cost of debt. Issuers in Greater China have had an average yield to maturity atinitial issuance of just 3% in the 'A' rating category, 3.9% in the 'BBB' rating category, and 6.4% inthe 'BB' rating category since 2013.

Higher-rated issuers tend to issue longer-term debt to take advantage of this lower cost of capital.


Default, Transition, and Recovery: 2017 Annual Greater China Corporate Default Study And Rating Transitions

In the same period, investment-grade issuers in Greater China averaged seven years for their newissuance terms, compared with just four years for speculative-grade issuers. This lower cost offinancing and longer maturities help issuers mitigate default risk as well as stabilize transitionrates.

In line with global trends, ratings continued to serve as effective indicators of relative credit risk inGreater China in 2017. Our study of corporate defaults in Greater China identified a clear negativecorrespondence between ratings and defaults: The higher the issuer credit rating, the lower theobserved default frequency.

The one-year Gini ratio--a measure of the relative ability of ratings to differentiate risk--was86.94% in Greater China. This signifies a strong ability of ratings to differentiate relative credit riskacross the ratings spectrum. The three-year Gini ratio for Greater China was 82.70%. Bycomparison, the global one-year Gini ratio was 82.39%, and the global three-year Gini ratio was75% (see table 1). Gini ratios are measures of the rank-ordering power of ratings over a given timehorizon. They show the ratio of actual rank-ordering performance to theoretically perfect rankordering (for details on the Gini methodology, refer to Appendix III).

Table 1

Corporate Gini Coefficients By Region

(%) --Time horizon--

Region One-year Three-year Five-year Seven-year

Global 82.39 75.00 71.65 69.43

U.S. 80.70 72.84 69.40 67.30

Europe 90.42 85.60 83.32 79.02

Asia (excluding Japan) 82.98 77.86 71.75 69.47

Greater China 86.94 82.70 73.33 70.72

Note: The Asia (excluding Japan) figures are for the period 1993-2017. Greater China figures are for the period 2000-2017. Global, U.S., andEurope figures are for the period 1981-2017. Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®.

Considering Greater China's comparatively high proportion of investment-grade companies, alongwith its strong Gini ratio and high stability rate, we believe issuers rated by S&P Global Ratings willcontinue to perform well, with low default tallies and stabilized rating transitions. This is not to saythat downgrades and defaults are not possible should economic and geopolitical conditionsdeteriorate, but rather that issuers in Greater China, especially in the 'AA', 'A', and 'BBB'categories, are overall better equipped to "weather the storm," and issuers rated in the 'B' and'CCC' categories, where the majority of downgrades and defaults would likely be concentrated, arefew. Globally, downgrades and defaults typically come from these low rating categories.

China Needs To Deleverage But Not Destabilize

Credit growth in Greater China has been excessive since 2016, and the corporate debt overhang inChina has led Chinese policymakers to respond with additional regulations to address the threatto the country's financial stability. One of the regulations by China's central bank is the "twinpillar" policy framework, which involves the use of both monetary tools and macroprudentialregulation to preserve the stability of the Chinese currency and the financial system. Chinesefinancial regulators are also tightening restrictions on both financial institutions and nonfinancialcompanies. As a result, the pace of lending, especially in the SOE sector, could moderate in the



next few years.

However, the unconventional nature of these policies has also resulted in shrinking interbank andoff-balance-sheet operations (which are a sizable part of the banking system). It remains to beseen how these policies will impact rating transitions, especially because the impact typicallytakes some time to be reflected in the transition rates. The household sector's debt-to-GDP ratioalso went up to 49% in 2017 from 44.8% in 2016, while the nonfinancial enterprises sector'sdebt-to-GDP ratio decreased by 1.3% (see chart 1).

Chart 1

While China's debt is largely domestically funded, a disorderly deleveraging could destabilizeasset and commodity markets, which the government is seeking to avoid. China will continue toincrease its macroprudential measures for the property market, as the central bank's deputygovernor announced in China's 19th Party Congress. In addition, Chinese authorities continue topromote services and consumption.

Chinese policymakers are using their strong centralized power to deleverage the economy and areready to fine-tune policies to support growth of their economy and capital markets. Chinapurposely slowed down the growth rate of the economy in 2017 to balance and restructure, thoughboth SOE and non-SOE businesses are now tasked with controlling credit growth and deleveragingtheir balance sheets, which may lead to weakening of industrial demands. SOEs have alreadystarted reducing their asset leverage ratios, but issuers with very high leverage might faceadditional pressure.

China has been pondering how to lower its debt burden without triggering unintendedconsequences that could destabilize the economy or the financial system. The deleveraging efforthas made domestic capital access more restrictive to certain sectors and issuers. As a result,some issuers have turned to offshore markets for funding. In 2017, 105 new corporate issuers inGreater China came to market, compared with 106 newly rated issuers in 2016, and the total



number of rated issuers in Greater China increased by 14% from year-end 2016 to year-end 2017.However, the 2017 growth rate was slower than average on a percentage basis.

In the future, SOE reform, corporate deleveraging, and the balance between economic growth,debt restructuring, and risk management could remain the main challenges in the deleveragingprocess.

Rated Issuers In Greater China Continue To Grow

The new issuers in 2017 in Greater China were predominantly rated in the 'B' rating category; bycontrast, the 'BBB' category was most common for new issuers in 2016. Yet the overall number ofGreater China investment-grade ratings, which are typically more stable, still grew by 8% (seechart 2). In 2016, the pool of rated corporate (financial and nonfinancial) issuers in Greater Chinaincreased by 25%, and in 2015, the increase was 23%.

Chart 2

Downgrades Outpaced Upgrades, While Defaults Remained Low

In 2017, downgrades dominated in Greater China after a number of financial institutions,insurance companies, and nonfinancial companies were downgraded following the lowering of thesovereign credit rating in September. There were 53 downgrades and 24 upgrades in Greater Chinain 2017 (see chart 3), yielding a downgrade-to-upgrade ratio of 2.2 to 1. This compares with 3.6 to1 in 2016 and an average of 2.1 to 1 during 2000-2016.

In the same period, the number of ratings in Greater China grew rapidly--just 70 issuers were



rated at the beginning of 2000, compared with 523 by the end of 2017--particularly in the 'A' and'BBB' categories.

Despite the downgrades, credit quality in Greater China remains relatively strong. After a nearly16-year peak of six defaults in Greater China in 2015, the number of defaults fell to just one in2017. By comparison, the global tally of defaults dropped to 95 in 2017 from 163 in 2016.

Chart 3

All of S&P Global Fixed Income Research's default studies have found a clear correlation betweenratings and defaults. Over every time horizon, lower ratings correspond to higher default rates (seechart 4). We found the same is true when examining the data by rating as well as by region. As theGini ratios show, the ability of corporate ratings to serve as effective measures of relative riskremains intact over time, particularly in low-default years.

Many default studies, including this one, also look at transition rates, which gauge the degree towhich ratings change--either up or down--over a particular period. Transition studies haverepeatedly confirmed that higher ratings tend to be more stable and that speculative-graderatings generally experience more volatility. However, since the financial downturn of 2008, manyhigh-rated entities have been downgraded, leaving, for example, very few 'AAA' rated issuers atthe start of 2017 globally. Thus, rating categories with fewer ratings will experience high ratingtransition rates even when a small number of issuers experience upgrades or downgrades.

In Greater China, the percentage of unchanged ratings was 74% in 2017 (compared with 77% in2016 and 79% in 2015). Despite the increased downgrades in 2017, the downgrade-to-upgraderatio fell from 2016, owing to the 8% increase in the number of upgrades in 2017, more stableratings, and a sizable increase in newly rated issuers (which tend to transition less).

By comparison, the percentage of unchanged ratings globally was 72% in 2017, 70% in 2016, and71% in 2015. Nearly all defaulters from 2000-2017 in Greater China were initially rated



speculative grade, and they averaged 3.6 years from initial rating to default. This is a faster rate ofdeterioration than globally, with an average of 5.8 years from initial rating to default, but defaultsin Greater China make up a fraction of global defaults, at just 27 from 2000-2017 (compared with2,672 defaults globally from 1981-2017); hence, idiosyncratic factors are often at play.

Chart 4

Chart 5



The number of defaults in Greater China was generally in line with global trends from 2000-2017,with peaks and valleys mirroring those of global counterparts. While downgrades in Greater Chinawere higher than average in 2017, there was only one default, the same as in 2016. In 2015, thenumber of defaults in Greater China exceeded the previous all-time high from 2009; however, the2015 speculative-grade default rate was 7.2%, which was still lower than the 2009 rate of 8.3%.The rate fell to zero in 2016 and then rose to almost 1% in 2017, owing to an increase inspeculative-grade defaulters. The speculative-grade default rate has been zero in seven of thepast 18 years.

The default rate for all rated corporate entities in Greater China was 0.19% in 2017, up from zeroin 2016 (see table 2). By comparison, the global speculative-grade corporate default ratedecreased to 2.4% in 2017, with a total of 95 defaults, from 4.2% with a total of 163 defaults in2016. The U.S. speculative-grade corporate default rate fell to 3.0% by the end of 2017 from 5.1%at the end of 2016 (see chart 6).

Both the number of defaulters and the number of speculative-grade issuers in Greater China arerelatively low. As a result, small differences in the numerators (default counts) and denominators(total number of speculative-grade issuers) can have a pronounced effect on default rates.

Table 2

Greater China Corporate Default Summary (One-Year Horizon)

Year

Totaldefaultcount*

Investment-gradedefault count

Speculative-gradedefault count

Defaultrate (%)

Investment-gradedefault rate (%)

Speculative-gradedefault rate (%)

2000 1 0 0 0.00 0.00 0.00

2001 0 0 0 0.00 0.00 0.00

2002 1 0 0 0.00 0.00 0.00

2003 1 0 1 0.75 0.00 1.28

2004 0 0 0 0.00 0.00 0.00

2005 0 0 0 0.00 0.00 0.00

2006 1 0 1 0.82 0.00 1.45

2007 1 0 1 0.72 0.00 2.70

2008 3 0 3 1.89 0.00 6.82

2009 4 0 4 2.70 0.00 8.33

2010 1 0 1 0.63 0.00 2.70

2011 0 0 0 0.00 0.00 0.00

2012 2 0 1 0.48 0.00 1.43

2013 2 0 2 0.81 0.00 2.99

2014 2 0 1 0.33 0.00 1.33

2015 6 0 6 1.63 0.00 7.23

2016 1 0 0 0.00 0.00 0.00

2017 1 0 1 0.19 0.00 0.79

Average 2 0 1 0.61 0.00 2.06

Median 1 0 1 0.41 0.00 1.31

Standarddeviation

2 0 2 0.77 0.00 2.70



Table 2

Greater China Corporate Default Summary (One-Year Horizon) (cont.)

Year

Totaldefaultcount*



Defaultrate (%)



Minimum 0 0 0 0.00 0.00 0.00

Maximum 6 0 6 2.70 0.00 8.33

*This column includes companies that were no longer rated at the time of default. Sources: S&P Global Fixed Income Research and S&P GlobalMarket Intelligence's CreditPro®.

Chart 6

The ratings distribution in Greater China is overwhelmingly investment grade, with just 31% ofissuers rated in the speculative-grade rating category, compared with 49% of issuers globally,56% in the U.S., 41% in Europe, 53% in emerging markets, and 23% in Asia-Pacific (see chart 7).These numbers partially reflect the credit markets' level of development, given that fixed incomeembraces highly diverse products and markets, from plain vanilla risk-free assets, likegovernment bonds, to more complex but socially useful ones, like asset-backed securities. China'scredit market has been growing incredibly quickly; however, the market is still suffering from itsrelatively small size, uneven issuer quality, higher regulation, and a comparatively limited numberof credit ratings.



Chart 7

The government has been trying to encourage the credit market to develop, including throughBond Connect, a new market access program that aims to attract more foreign investors toChina's bond market. While the Chinese bond market is the third largest in the world, its investorbase is predominantly domestic.

Nevertheless, we expect some capital outflows from China in upcoming years, due to risinginterest rates after years of low yields in developed economies and a high appetite for riskierassets, along with a relatively strong dollar. However, inflows could offset this somewhat, and S&PGlobal economists' base case assumptions still reflect solid growth prospects for China. We do notanticipate a broad-based mass outflow of capital like that seen during the so-called TaperTantrum in 2013. All the same, the rising interest rates in developed economies are contributing tomore volatility in the global financial system, and China is not an exception, especially amid thetrade disputes with the U.S. and the potential geopolitical risks between the U.S. and North Korea.

Global credit conditions remain broadly favorable: The U.S. economic expansion continues,interest rates are increasing at a measured pace, and upcoming maturities appear manageable.The biggest threats to what has been a historic stretch of benign conditions are increasing, fromthe perspective of China, though globally as well; these include the escalating U.S.-China tradedispute, rising corporate debt, and upward pressure on borrowing costs. (For more information,please see "U.S. Poses Trifecta Risk: Trade, Spreads, And Cycle Turn," published June 28, 2018.)

Financing conditions also remain favorable, with debt issuance holding up fairly well, thecorporate distress ratio at its lowest in more than three years, upcoming maturities seemingmanageable, and interest rates rising measuredly, though we expect issuance overall to fall this



year on account of record-high issuance in 2017 and a number of headwinds. (For moreinformation, see "Global Issuance And Financing Conditions: Bond Issuance Is Up 1% ThroughApril On Strong Chinese Totals," published June 7, 2018.)

According to the Institute of International Finance (IIF) capital flows tracker report, emergingmarkets had accumulated more than $113 billion of foreign exchange (FX) reserves as of July2018, which was the fastest pace of reserve accumulation since 2014, due to strong net capitalinflows. The main driver behind the capital flows was the People's Bank of China's FX purchases.Despite rising trade tensions, China attracted more than $87 billion of net inflows in the first fivemonths of the year, compared with large outflows of about $30 billion during the same period in2017. It remains to be seen how U.S.-China trade tensions will evolve, which could changerenminbi and U.S. dollar trends. The IIF also projected a resumption of the vicious cycle of weakerrenminbi and capital flight if a genuine trade war erupts, which could trigger large outflows fromChina. (For more information, please see the IIF's report, "IIF Capital Flows Tracker: ChallengingTimes," published July 2, 2018).

When issuers are rated investment grade, they typically have more favorable lending terms andlower financing costs, and as a result, they tend to have lower rates of default and more stablecredit ratings. Investment-grade ratings also tend to be less cyclical in nature than theirspeculative-grade counterparts, as well as somewhat less affected by macroeconomic stress.While downgrades may materialize in the presence of sudden macroeconomic shocks, defaultsremain rare for investment-grade issuers.

The median rating for Greater China in 2017 was 'BBB' (higher than the global median rating of'BBB-' in 2017), with a median rating at 'A-' for financial issuers and 'BBB-' for nonfinancialissuers. By comparison, the U.S. median rating in 2017 was 'BB', with a financial median rating of'A-' and nonfinancial median rating of 'BB-'. The global median rating for financials was 'BBB+',and the global median rating for nonfinancials was 'BB' in 2017.

Globally, corporate defaults fell to 95 in 2017 from 163 in 2016 and 113 in 2015. The globalcorporate default count reached a record high of 268 in 2009 (see table 3).

Table 3

Global Corporate Default Summary

Year

Totaldefaultcount*



Defaultrate(%)



Total debtdefaulting

(bil. $)

1981 2 0 2 0.14 0.00 0.62 0.1

1982 18 2 15 1.19 0.18 4.41 0.9

1983 12 1 10 0.76 0.09 2.94 0.4

1984 14 2 12 0.91 0.17 3.27 0.4

1985 19 0 18 1.11 0.00 4.32 0.3

1986 34 2 30 1.72 0.15 5.67 0.5

1987 19 0 19 0.94 0.00 2.79 1.6

1988 32 0 29 1.38 0.00 3.85 3.3

1989 44 3 35 1.77 0.22 4.67 7.3

1990 70 2 56 2.73 0.14 8.12 21.2

1991 93 2 65 3.25 0.14 11.05 23.7

1992 39 0 32 1.49 0.00 6.10 5.4



Table 3

Global Corporate Default Summary (cont.)

Year

Totaldefaultcount*



Defaultrate(%)



Total debtdefaulting

(bil. $)

1993 26 0 14 0.60 0.00 2.50 2.4

1994 21 1 15 0.63 0.05 2.11 2.3

1995 35 1 29 1.05 0.05 3.53 9.0

1996 20 0 16 0.51 0.00 1.81 2.7

1997 23 2 20 0.63 0.08 2.01 4.9

1998 56 4 48 1.28 0.14 3.66 11.3

1999 109 5 92 2.14 0.17 5.56 39.4

2000 136 7 109 2.48 0.24 6.23 43.3

2001 229 7 173 3.78 0.23 9.87 118.8

2002 226 13 159 3.59 0.42 9.50 190.9

2003 119 3 89 1.92 0.10 5.07 62.9

2004 56 1 38 0.78 0.03 2.02 20.7

2005 40 1 31 0.60 0.03 1.50 42.0

2006 30 0 26 0.48 0.00 1.19 7.13

2007 24 0 21 0.37 0.00 0.91 8.15

2008 127 14 89 1.80 0.42 3.69 429.63

2009 268 11 224 4.18 0.33 9.90 627.70

2010 83 0 64 1.20 0.00 3.01 97.48

2011 53 1 44 0.80 0.03 1.84 84.30

2012 83 0 66 1.14 0.00 2.58 86.70

2013 81 0 64 1.06 0.00 2.30 97.29

2014 60 0 45 0.69 0.00 1.43 91.55

2015 113 0 94 1.36 0.00 2.76 110.31

2016 163 1 143 2.08 0.03 4.21 239.79

2017 95 0 83 1.20 0.00 2.44 104.57

Average 72 2 57 1.45 0.09 4.08 69.31

Median 53 1 38 1.19 0.03 3.27 20.66

Standarddeviation

65 4 51 0.99 0.12 2.69 126.94

Minimum 2 0 2 0.14 0.00 0.62 0.06

Maximum 268 14 224 4.18 0.42 11.05 627.70

*This column includes companies that were no longer rated at the time of default. Sources: S&P Global Fixed Income Research and S&P GlobalMarket Intelligence's CreditPro®.



Table 4

Summary Of Greater China Net Annual Rating Activity*

YearIssuercount

Upgrades(%)

Downgrades(%)§

Defaults(%)

Withdrawnratings (%)

Changedratings

(%)Unchangedratings (%)

Downgrade/upgraderatio

2000 70 4.29 7.14 0.00 4.29 15.71 84.29 1.67

2001 78 6.41 2.56 0.00 3.85 12.82 87.18 0.40

2002 87 14.94 18.39 0.00 9.20 42.53 57.47 1.23

2003 134 0.75 2.99 0.75 11.19 15.67 84.33 4.00

2004 134 8.21 2.24 0.00 3.73 14.18 85.82 0.27

2005 149 28.19 4.70 0.00 6.04 38.93 61.07 0.17

2006 159 9.43 4.40 0.63 37.11 51.57 48.43 0.47

2007 122 13.11 6.56 0.82 12.30 32.79 67.21 0.50

2008 139 7.19 13.67 2.16 9.35 32.37 67.63 1.90

2009 159 3.77 12.58 2.52 13.84 32.70 67.30 3.33

2010 148 16.22 4.05 0.68 8.11 29.05 70.95 0.25

2011 160 8.75 11.88 0.00 5.63 26.25 73.75 1.36

2012 198 1.01 10.10 0.51 9.60 21.21 78.79 10.00

2013 209 9.57 7.66 0.96 7.66 25.84 74.16 0.80

2014 248 7.26 9.27 0.40 4.44 21.37 78.63 1.28

2015 300 4.67 8.33 2.00 6.00 21.00 79.00 1.79

2016 368 3.53 12.77 0.00 7.07 23.37 76.63 3.62

2017 460 5.22 11.30 0.22 9.35 26.09 73.91 2.17

Weightedaverage

7.56 9.00 0.66 9.21 26.43 73.57 2.22

Average 8.47 8.37 0.65 9.37 26.86 73.14 1.95

Median 7.23 7.99 0.45 7.88 25.96 74.04 1.32

Standarddeviation

6.54 4.50 0.80 7.51 10.36 10.36 2.33

Minimum 0.75 2.24 0.00 3.73 12.82 48.43 0.17

Maximum 28.19 18.39 2.52 37.11 51.57 87.18 10.00

*Issuer counts as of the end of each year. This table compares the net change in ratings from the first to the last day of each year. Allintermediate ratings are disregarded. §Excludes downgrades to 'D' (default), shown separately in the defaults column. Sources: S&P GlobalFixed Income Research and S&P Global Market Intelligence's CreditPro®.

Table 5

Rating Classification Of New Corporate Issuers In Greater China*

--First rating--

Year AAA AA A BBB BB B CCC/C TotalInvestment grade

(%)Speculative grade

(%)

2000 0 0 2 2 1 6 0 11 36.36 63.64

2001 0 2 2 7 0 1 0 12 91.67 8.33



Table 5

Rating Classification Of New Corporate Issuers In Greater China* (cont.)

--First rating--

Year AAA AA A BBB BB B CCC/C TotalInvestment grade

(%)Speculative grade

(%)

2002 0 2 3 12 16 29 1 63 26.98 73.02

2003 0 0 1 11 3 1 1 17 70.59 29.41

2004 0 0 4 8 5 0 0 17 70.59 29.41

2005 0 0 0 8 8 2 0 18 44.44 55.56

2006 0 0 3 4 12 7 0 26 26.92 73.08

2007 0 0 9 4 5 12 1 31 41.94 58.06

2008 0 1 13 9 9 2 0 34 67.65 32.35

2009 0 0 6 4 1 2 2 15 66.67 33.33

2010 0 1 3 8 8 5 0 25 48.00 52.00

2011 0 3 4 6 22 11 0 46 28.26 71.74

2012 0 0 7 8 9 6 0 30 50.00 50.00

2013 0 2 12 22 15 7 1 59 61.02 38.98

2014 0 0 20 25 9 10 1 65 69.23 30.77

2015 0 4 24 31 12 7 2 80 73.75 26.25

2016 0 0 16 48 34 8 0 106 60.38 39.62

2017 0 4 14 24 27 35 1 105 40.00 60.00

Total 0 19 143 241 196 151 10 760 53.03 46.97

*Includes issuers that are assigned new ratings after default as well as companies that receive ratings for the first time. Sources: S&P GlobalFixed Income Research and S&P Global Market Intelligence's CreditPro®.

Higher Ratings Are Consistent With Fewer Defaults

We generally have observed that higher-rated entities take a longer time to default thanlower-rated entities do. We have also found this to be true for issuers in Greater China, using theoriginal rating and last rating as the reference points (see table 6). For example, Greater Chinaentities rated 'B' took an average of 3.7 years to default--less than the average of 4.1 years todefault for 'BB' rated entities. The exception to this pattern, in the 'BBB' rating category, is due to asmall sample size of issuers (just two) that defaulted that were ever rated in the 'BBB' category.

For the entire long-term pool of Greater China defaults (27 issuers), the average time to defaultacross all rating categories was 3.6 years, compared with 5.8 years in the global pool. Moreover,we observe the same gap in the average time to default between rated global issuers and ratedGreater China issuers in each rating category. The smaller sample size in Greater China (and arelative scarcity of defaults) is largely responsible for this disparity. As expected, higher ratingshave a longer time to default than lower ratings.



Table 6

Time To Default From Original Rating Among Corporate Defaulters (Greater ChinaVersus Global)

Original rating Default countAverage years from

original rating*Median years from

original ratingStandard deviation of years

from original rating

Greater China (2000-2017)

AAA N.A. N.A. N.A. N.A.

AA N.A. N.A. N.A. N.A.

A N.A. N.A. N.A. N.A.

BBB 2 3.5 3.5 1.3

BB 12 4.1 4.4 2.5

B 10 3.7 2.6 2.9

CCC/C 3 1.3 1.4 0.2

Total 27 3.6 3.0 2.5

Global (1981-2017)

AAA 8 18.0 18.5 11.4

AA 29 15.2 14.4 8.5

A 98 13.5 10.9 8.5

BBB 207 8.8 7.1 6.5

BB 605 6.7 5.2 5.5

B 1,473 4.8 3.5 4.1

CCC/C 252 2.2 1.3 2.8

Total 2,672 5.8 4.0 5.5

N.A.--Not available. Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®.

Default rates by rating modifier (the plus or minus after the rating) show that lower ratingcategories historically experience higher default rates on average, though variability is possible inany given year (see table 7). Nevertheless, the data from past default cycles indicate that mostdefaults stemmed from the lowest ratings.

Table 7

Greater China Cumulative Corporate One-Year Default Rates By Rating Modifier

(%) AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC/C

2000 N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2001 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2002 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2003 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 20.00

2004 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2005 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2006 N/A N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 6.67 0.00 0.00 0.00 0.00

2007 N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 N/A 100.00



Table 7

Greater China Cumulative Corporate One-Year Default Rates By Rating Modifier (cont.)

(%) AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC/C

2008 N/A N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 9.09 16.67 0.00 25.00 N/A 0.00

2009 N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 10.00 33.33 25.00 100.00

2010 N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 33.33

2011 0.00 N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2012 0.00 N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5.26 0.00 0.00 0.00

2013 0.00 N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 7.69 0.00 0.00 100.00

2014 0.00 N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 33.33

2015 0.00 N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4.00 8.33 9.09 0.00 100.00

2016 0.00 N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2017 0.00 N/A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 11.11 0.00

Average 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.51 1.52 1.74 3.75 2.26 27.04

Median 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Standarddeviation

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.14 4.18 3.45 9.60 6.67 41.63

Minimum 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Maximum 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 9.09 16.67 10.00 33.33 25.00 100.00

Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®.

Industry Profile

In 2017, the one defaulter in Greater China was MIE Holdings Corp., from the energy and naturalresources sector. The annual corporate default rate for the sector rose to 7.7%. Nonfinancialentities accounted for all of the defaults in Greater China from 2000-2017. The highest defaultrate by sector was in consumer services, in 2008, at 33% (two out of the six rated issuersdefaulted), followed by the aerospace, automotive, capital goods, and metals sector's 29% defaultrate in 2009. Given the relatively small number of ratings in Greater China, these rates can varysubstantially.

In 2017, among SOEs, the utility sector had the highest proportion of downgrades (21% of the totalSOE downgrades). Energy companies were also under high pressure due to increasing coal prices,which are difficult to pass on to consumers.

In the period between 2015 and 2017, the aerospace, automotive, capital goods, and metalssector grew roughly 60% to 89 issuers, and the high technology, computers, and office equipmentsector grew 27% to 47 issuers. By absolute count, the largest growth was in the financialinstitutions sector and real estate sector, which grew by 38 issuers each, to 209 and 140 issuers,respectively.

For the real estate sector, Chinese housing prices have been soaring. The government stepped into cool down the country's overheating property market a few years back, with some result.According to S&P Global Ratings' real estate analysts, tight funding and leverage constraints aredeepening the 'B' pool. Many financing channels are narrowing amid tightening regulations,



leading to higher credit costs. These financing channels include alternative funding marketsfrequented by developers.

Moreover, domestic developers face a surge in refinancing needs in 2018-2019, which is drivingthem to seek alternative options, with the offshore market being a major one. New issuers comingto the offshore market tend to have shorter operating track records, limited market shares relativeto large peers, high geographic concentration, and high leverage. This reflects the highlyfragmented nature of the property market in China, which has thousands of small localdevelopers. The companies' high leverage is spurred by their desire to grow bigger and avoid beingmarginalized (see "As The Pool Of 'B' Rated Chinese Developers Deepens, Who Will Sink OrSwim?", June 13, 2018).

The uncertainty of housing prices has become one of the key downsides to China's economicprospects in 2017, according to the World Bank's China economic update. China has taken recentmeasures aimed at curbing speculations in property markets and keeping the sector growing at ahealthy pace.

Table 8

Annual Greater China Corporate Default Rates By Industry

(%)

YearAerospace/auto/capital

goods/metals Consumer/service

Energyand

naturalresources

Financialinstitutions

Forest and buildingproducts/homebuilders

Healthcare/chemicals

Hightech/computers/office

equipment

2000 0.00 0.00 N/A 0.00 0.00 N/A N/A

2001 0.00 0.00 N/A 0.00 0.00 0.00 N/A

2002 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2003 0.00 0.00 0.00 0.00 0.00 N/A 8.33

2004 0.00 0.00 0.00 0.00 0.00 N/A 0.00

2005 0.00 0.00 0.00 0.00 0.00 N/A 0.00

2006 16.67 0.00 0.00 0.00 0.00 0.00 0.00

2007 0.00 0.00 0.00 0.00 0.00 0.00 10.00

2008 0.00 33.33 16.67 0.00 0.00 0.00 0.00

2009 28.57 0.00 0.00 0.00 0.00 0.00 11.11

2010 0.00 0.00 25.00 0.00 0.00 0.00 0.00

2011 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2012 0.00 0.00 0.00 0.00 0.00 11.11 0.00

2013 0.00 0.00 10.00 0.00 14.29 0.00 0.00

2014 0.00 0.00 7.69 0.00 0.00 0.00 0.00

2015 0.00 6.67 14.29 0.00 25.00 0.00 0.00

2016 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2017 0.00 0.00 7.69 0.00 0.00 0.00 0.00

Average 2.51 2.22 5.08 0.00 2.18 0.79 1.84

Median 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Standarddeviation

7.59 7.92 7.80 0.00 6.61 2.97 3.99



Table 8

Annual Greater China Corporate Default Rates By Industry (cont.)

Minimum 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Maximum 28.57 33.33 25.00 0.00 25.00 11.11 11.11

InsuranceLeisure

time/mediaReal

estate Telecom Transportation Utility

2000 0.00 N/A 0.00 N/A 0.00 0.00

2001 0.00 N/A 0.00 N/A 0.00 0.00

2002 0.00 N/A 0.00 0.00 0.00 0.00

2003 0.00 0.00 0.00 0.00 0.00 0.00

2004 0.00 0.00 0.00 0.00 0.00 0.00

2005 0.00 0.00 0.00 0.00 0.00 0.00

2006 0.00 0.00 0.00 0.00 0.00 0.00

2007 0.00 0.00 0.00 0.00 0.00 0.00

2008 0.00 0.00 0.00 0.00 0.00 0.00

2009 0.00 0.00 4.35 0.00 0.00 0.00

2010 0.00 0.00 0.00 0.00 0.00 0.00

2011 0.00 0.00 0.00 0.00 0.00 0.00

2012 0.00 N/A 0.00 0.00 0.00 0.00

2013 0.00 0.00 0.00 0.00 0.00 0.00

2014 0.00 0.00 0.00 0.00 0.00 0.00

2015 0.00 0.00 3.08 0.00 0.00 0.00

2016 0.00 0.00 0.00 0.00 0.00 0.00

2017 0.00 0.00 0.00 0.00 0.00 0.00

Average 0.00 0.00 0.41 0.00 0.00 0.00

Median 0.00 0.00 0.00 0.00 0.00 0.00

Standarddeviation

0.00 0.00 1.22 0.00 0.00 0.00

Minimum 0.00 0.00 0.00 0.00 0.00 0.00

Maximum 0.00 0.00 4.35 0.00 0.00 0.00


Table 9

Cumulative Greater China Corporate Default Rates By Sector (All Rated)

(%) --All financials-- --All nonfinancials--

Year One-year Three-year 10-year One-year Three-year 10-year

2000 0.00 0.00 0.00 0.00 0.00 3.45

2001 0.00 0.00 0.00 0.00 0.00 3.33

2002 0.00 0.00 0.00 0.00 2.86 5.71

2003 0.00 0.00 0.00 2.00 2.00 4.00



Table 9

Cumulative Greater China Corporate Default Rates By Sector (All Rated) (cont.)

(%) --All financials-- --All nonfinancials--

Year One-year Three-year 10-year One-year Three-year 10-year

2004 0.00 0.00 0.00 0.00 0.00 3.77

2005 0.00 0.00 0.00 0.00 1.52 6.06

2006 0.00 0.00 0.00 1.43 2.86 7.14

2007 0.00 0.00 0.00 1.32 3.95 7.89

2008 0.00 0.00 0.00 3.75 8.75 11.25

2009 0.00 0.00 N/A 4.60 5.75 N/A

2010 0.00 0.00 N/A 1.33 2.67 N/A

2011 0.00 0.00 N/A 0.00 3.45 N/A

2012 0.00 0.00 N/A 0.85 3.42 N/A

2013 0.00 0.00 N/A 1.60 5.60 N/A

2014 0.00 0.00 N/A 0.65 3.90 N/A

2015 0.00 0.00 N/A 3.24 3.78 N/A

2016 0.00 N/A N/A 0.00 N/A N/A

2017 0.00 N/A N/A 0.36 N/A N/A

Median 0.00 0.00 0.00 0.75 3.14 5.71

Standard deviation 0.00 0.00 0.00 1.42 2.31 2.62

Minimum 0.00 0.00 0.00 0.00 0.00 3.33

Maximum 0.00 0.00 0.00 4.60 8.75 11.25

Note: "All financials" refers to financial institutions and insurance combined. Sources: S&P Global Fixed Income Research and S&P GlobalMarket Intelligence's CreditPro®.

Transition Tables And Cumulative Default Rates

Analysis of rating transitions in 2017 suggests that ratings behavior in Greater China continues toexhibit consistency with global trends, which have shown a negative correspondence betweencredit rating and default. Overall, investment-grade issuers in Greater China tend to exhibitgreater credit stability (as measured by the frequency of rating transitions) than theirspeculative-grade counterparts.

However, this year was exceptional for 'AAA' rated issuers in Greater China, 100% of which weredowngraded to 'AA' over the course of the year (see table 10). This was partly due to thedowngrades of China, Hong Kong, and related institutions in 2017.

Nevertheless, higher-rated issuers still showed greater ratings stability in 2017 thanspeculative-grade issuers. For example, 95% of Greater China issuers rated 'A' at the beginning of2017 (Jan. 1, 2017) were still rated 'A' at the end of the year (Dec. 31, 2017), and the comparableshare for issuers rated 'B' was only 74%. (Caution must be used in interpreting the low stabilityrates associated with the 'CCC'/'C' rating category in light of the small sample size.)

In the speculative-grade category, stability rates are lower in Greater China than globally



(especially in the 'B' rating category), owing to both a smaller sample size in Greater China, where31% of ratings are speculative grade (versus 49% globally) and a higher withdrawal rate (shownhere as a transition to not rated ["NR"]).

We also track defaults even after the ratings on the issuers are withdrawn. For example, ahypothetical issuer that is rated in January 2016, undergoes a rating withdrawal in May 2016, anddefaults in December 2016 will count in the 2016 trailing-12-month default rate. In thetrailing-12-month default rate for June 2016, this hypothetical issuer will not count because itwas not rated at the start of the period (June 2016). Please see Appendix I for more details.

Table 10

2017 One-Year Corporate Transition Rates: Greater China Versus Global

From/to AAA AA A BBB BB B CCC/C D NR

Greater China

AAA 0.00 100.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 46.67 53.33 0.00 0.00 0.00 0.00 0.00 0.00

A 0.00 0.00 94.89 2.92 0.00 0.00 0.00 0.00 2.19

BBB 0.00 0.00 1.13 90.96 1.69 0.00 0.00 0.00 6.21

BB 0.00 0.00 0.00 1.20 69.88 4.82 0.00 0.00 24.10

B 0.00 0.00 0.00 0.00 2.63 73.68 5.26 2.63 15.79

CCC/C 0.00 0.00 0.00 0.00 0.00 0.00 40.00 0.00 60.00

Global

AAA 64.29 35.71 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 92.56 4.17 0.00 0.00 0.00 0.00 0.00 3.27

A 0.00 0.44 93.36 2.36 0.00 0.00 0.00 0.00 3.84

BBB 0.00 0.00 2.33 90.00 2.67 0.11 0.00 0.00 4.89

BB 0.00 0.00 0.08 3.57 80.56 4.63 0.00 0.08 11.09

B 0.00 0.00 0.00 0.00 3.65 75.68 4.14 0.98 15.54

CCC/C 0.00 0.00 0.00 0.41 0.00 16.80 38.11 26.23 18.44

D--Default. NR--Not rated. Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence's CreditPro®.

This pattern is similar to the long-term (2000-2017) trend of ratings behavior among all globalrated issuers. Of the issuers rated 'AA' in Greater China, 85% retained this rating after one year,whereas only 68% of issuers rated 'B' retained that rating (see table 11). Based on the transitionanalysis for a two-year horizon, lower ratings also tend to display less stability than higher ratings(see table 12). Due to sample sizes, there are aberrations from time to time, as is the case withtransitions from the 'BB' and 'B' rating categories to not rated (due to withdrawal). Theseaberrations have lowered the stability rate because of the relatively high withdrawal rate of theseissuers.

Transitions at the rating modifier also display the same relationship by and large, thoughdifferences in sample size occasionally create slight variations between adjacent ratingcategories (see table 13).



Table 11

Average One-Year Corporate Transition Rates

(%)



AAA 85.71 14.29 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 3.05 84.76 11.59 0.00 0.00 0.00 0.00 0.00 0.61

A 0.00 1.85 93.15 2.39 0.00 0.00 0.00 0.00 2.61

BBB 0.00 0.00 3.28 88.84 2.25 0.00 0.00 0.00 5.63

BB 0.00 0.00 0.00 2.51 73.08 5.33 0.15 0.59 18.34

B 0.00 0.00 0.00 0.24 5.26 67.94 3.35 2.15 21.05

CCC/C 0.00 0.00 0.00 0.00 0.00 11.63 46.51 20.93 20.93

Global (1981-2017)

AAA 86.99 9.12 0.53 0.05 0.08 0.03 0.05 0.00 3.15

AA 0.51 86.95 7.91 0.50 0.05 0.07 0.02 0.02 3.97

A 0.03 1.72 88.00 5.22 0.30 0.12 0.02 0.06 4.52

BBB 0.01 0.10 3.45 85.79 3.73 0.49 0.11 0.17 6.16

BB 0.01 0.03 0.12 4.88 77.19 6.79 0.58 0.68 9.72

B 0.00 0.02 0.08 0.18 5.05 74.34 4.44 3.59 12.28

CCC/C 0.00 0.00 0.12 0.21 0.59 13.18 43.46 26.82 15.63


Table 12

Average Two-Year Corporate Transition Rates

(%)



AAA 83.33 16.67 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 6.71 73.83 17.45 0.00 0.00 0.00 0.00 0.00 2.01

A 0.00 3.58 86.72 4.85 0.00 0.00 0.00 0.00 4.85

BBB 0.00 0.00 6.97 79.19 3.94 0.00 0.00 0.00 9.90

BB 0.00 0.00 0.17 5.06 56.49 8.60 0.67 1.18 27.82

B 0.00 0.00 0.00 0.79 7.63 47.37 3.95 5.00 35.26

CCC/C 0.00 0.00 0.00 0.00 0.00 13.16 18.42 34.21 34.21

Global (1981-2017)

AAA 75.66 16.17 1.44 0.11 0.19 0.05 0.11 0.03 6.25

AA 0.90 75.66 14.06 1.27 0.19 0.14 0.02 0.06 7.69

A 0.04 3.11 77.54 9.12 0.78 0.28 0.04 0.14 8.96

BBB 0.02 0.19 6.33 73.99 5.94 1.10 0.22 0.50 11.72



Table 12

Average Two-Year Corporate Transition Rates (cont.)

(%)


BB 0.01 0.04 0.30 8.63 59.82 10.19 1.06 2.16 17.78

B 0.00 0.03 0.15 0.43 8.47 55.23 5.12 8.41 22.15

CCC/C 0.00 0.00 0.16 0.54 1.11 16.84 21.33 36.07 23.94


Table 13

Average One-Year Transition Rates For Greater China Corporates By Rating Modifier (2000-2017)

(%)

From/to AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC D NR

AAA 85.71 14.29 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA+ 50.00 50.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 0.00 17.39 69.57 13.04 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA- 0.00 0.00 3.82 80.92 13.74 0.76 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.76

A+ 0.00 0.00 0.42 6.30 79.41 10.50 0.84 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.52

A 0.00 0.00 0.00 0.36 6.41 84.70 5.69 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.85

A- 0.00 0.00 0.00 0.00 0.50 4.99 86.53 4.99 0.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.49

BBB+ 0.00 0.00 0.00 0.00 0.00 0.25 8.23 82.29 5.24 0.75 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.24

BBB 0.00 0.00 0.00 0.00 0.00 0.00 0.00 11.24 80.40 2.31 0.29 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5.76

BBB- 0.00 0.00 0.00 0.00 0.00 0.00 0.31 1.26 4.72 77.99 5.97 0.63 0.63 0.00 0.00 0.00 0.00 0.00 8.49

BB+ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.03 5.15 61.34 12.37 1.55 0.00 0.52 0.00 0.00 0.00 18.04

BB 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.47 0.47 0.47 7.01 60.28 12.15 0.93 0.00 0.47 0.47 0.47 16.82

BB- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.37 0.37 1.49 4.10 60.82 10.07 1.49 0.37 0.00 1.12 19.78

B+ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.52 1.57 4.71 53.93 13.09 3.14 1.05 2.09 19.90

B 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.20 3.59 5.99 56.89 8.38 0.60 1.80 21.56

B- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.67 0.00 0.00 1.67 0.00 1.67 50.00 18.33 3.33 23.33

CCC/C 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 6.98 2.33 2.33 46.51 20.93 20.93


The negative correspondence between ratings and defaults in Greater China holds true over time,as the cumulative average default rates illustrate (see tables 14-15 and chart 8). On average, from2000-2017, all rated Greater China issuers had a default rate of 0.66% in the first year after theywere rated and of 1.29% in the second year. Issuers rated 'BB' had a default rate of 0.59% in thefirst year after they were rated and of 1.1% in the second year. Issuers rated 'B' had a default rateof 2.15% on average in the first year, 5.05% in the second, and so on.

The stability rates of 'BB-' rated entities are lower than those of 'BB' and 'B+' rated entitiesbecause of withdrawals and transitions to not rated. This is also true of 'BB+' rated issuers versus



'BBB-' and 'BB' rated issuers. The cumulative average default rates in the 'CCC'/'C' rating categoryare repeated in years two to 10 because of a limited sample size and a limited number of 10-yearperiods in the sample years of 2000-2017 in Greater China (seven 10-year samples), as comparedwith a larger sample of 1981-2017 globally (27 10-year samples).

Table 14

Comparison Of Corporate Cumulative Average Default Rates

(%) --Time horizon (years)--

From/to 1 2 3 4 5 6 7 8 9 10


AAA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 N/A N/A N/A

AA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

BBB 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

BB 0.59 1.10 1.65 3.09 4.47 4.97 5.81 6.40 6.40 6.40

B 2.15 5.05 7.36 8.30 8.97 10.07 10.47 11.32 11.77 11.77

CCC/C 20.93 31.84 31.84 31.84 31.84 31.84 31.84 31.84 31.84 31.84

Investment grade 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Speculative grade 1.93 3.72 4.92 6.11 7.16 7.88 8.51 9.18 9.36 9.36

All rated 0.66 1.29 1.73 2.19 2.60 2.89 3.15 3.44 3.52 3.52

Global (1981-2017)

AAA 0.00 0.03 0.13 0.24 0.35 0.46 0.51 0.60 0.65 0.71

AA 0.02 0.06 0.12 0.22 0.32 0.43 0.53 0.60 0.68 0.75

A 0.06 0.14 0.24 0.37 0.51 0.66 0.85 1.01 1.17 1.34

BBB 0.17 0.49 0.84 1.26 1.70 2.13 2.50 2.87 3.23 3.58

BB 0.68 2.13 3.83 5.53 7.11 8.57 9.81 10.92 11.90 12.77

B 3.59 8.25 12.26 15.44 17.88 19.88 21.48 22.76 23.90 24.95

CCC/C 26.82 36.03 41.03 43.97 46.22 47.13 48.33 49.23 50.08 50.71

Investment grade 0.10 0.26 0.45 0.68 0.92 1.17 1.40 1.61 1.82 2.03

Speculative grade 3.75 7.31 10.39 12.90 14.95 16.64 18.05 19.23 20.27 21.21

All rated 1.50 2.95 4.22 5.29 6.18 6.94 7.57 8.12 8.60 9.05




Chart 8

Lower ratings generally correspond with higher default rates, and the default rates in the 'CCC'/'C'category are much higher than those in the higher rating categories. The relatively small samplesizes of some rating categories in Greater China may add volatility to default rates and at timescause them to deviate from both global trends as well as expectations, as is the case in the 'BB-'through 'B' rating categories.

Table 15

Greater China Corporate Cumulative Average Default Rates By Rating Modifier(2000-2017)


Rating 1 2 3 4 5 6 7 8 9 10

AAA 0.00 0.00 0.00 0.00 0.00 0.00 N/A N/A N/A N/A

AA+ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 N/A N/A

AA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

A+ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

A 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00



Table 15

Greater China Corporate Cumulative Average Default Rates By Rating Modifier(2000-2017) (cont.)


Rating 1 2 3 4 5 6 7 8 9 10

A- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

BBB+ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

BBB 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

BBB- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

BB+ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

BB 0.47 1.01 2.21 4.14 6.27 6.27 6.27 6.27 6.27 6.27

BB- 1.12 1.93 2.37 4.36 6.04 7.27 9.35 10.81 10.81 10.81

B+ 2.09 4.84 8.46 9.75 10.42 12.59 13.41 15.14 16.04 16.04

B 1.80 3.84 4.61 5.43 6.33 6.33 6.33 6.33 6.33 6.33

B- 3.33 9.13 11.20 11.20 11.20 11.20 11.20 11.20 11.20 11.20

CCC/C 20.93 31.84 31.84 31.84 31.84 31.84 31.84 31.84 31.84 31.84

Investmentgrade

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Speculativegrade

1.93 3.72 4.92 6.11 7.16 7.88 8.51 9.18 9.36 9.36

All rated 0.66 1.29 1.73 2.19 2.60 2.89 3.15 3.44 3.52 3.52


Gini Ratios And Lorenz Curves

A quantitative measure of ratings performance indicates that the relative rank ordering of ratingsin Greater China is consistent across various time horizons. To measure ratings performance, orratings accuracy, the cumulative share of issuers by rating is plotted against the cumulative shareof defaulters in a Lorenz curve to render the accuracy of their rank ordering visually. Fordefinitions and methodology, refer to Appendix III.

Our calculations indicate that the one-year transition to default in Greater China shows anaverage one-year Gini coefficient of 86.94%, a three-year of 82.70%, and a five-year of 73.33%.For Greater China, where SOEs play a critical role in the Chinese economy, we also differentiatedthe Gini by SOE and non-SOE: The average one-year SOE Gini coefficient was 98.94%, and theaverage one-year non-SOE Gini was 83.08% (see table 16). These figures illustrate that SOEissuers show comparatively stronger rank ordering of ratings with respect to defaults, whilenon-SOE issuers follow global norms, albeit with slightly higher ratings performance.

If corporate ratings only randomly approximated default risk, the Gini coefficient would be zero.On the other hand, if corporate ratings were perfectly rank ordered so that all defaults occurredonly among the lowest-rated entities, the Lorenz curve would capture all of the area on the graphabove the diagonal, and its Gini coefficient would be 1.



Table 16

Corporate Gini Coefficients By Type

(%) --Time horizon--

One-year Three-year Five-year Seven-year

Greater China 86.94 82.70 73.33 70.72

Non-state-owned enterprise 83.08 79.06 68.81 66.01

State-owned enterprise 98.94 98.28 97.43 96.46

Note: Greater China figures are for the period 2000-2017. Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence'sCreditPro®.

As expected, the Gini coefficients decline as the time horizon lengthens because longer timehorizons allow for more credit degradation among higher-rated entities. In the one-year GreaterChina Lorenz curve, for example, 100% of defaults occurred in the speculative-grade category,while speculative-grade ratings constituted only 34.23% of all Greater China corporate issuers(see chart 9). The three-year Lorenz curve shows that speculative-grade issuers constituted 100%of defaulters and only 36.89% of the entire sample (see chart 10). The five-year Lorenz curveshows that speculative-grade issuers constituted 100% of defaulters and only 39.16% of theentire sample (see chart 11). If the rank ordering of ratings had little predictive value, thecumulative share of defaulting corporate entities and the cumulative share of all entities would benearly the same.

Chart 9



Chart 10

Chart 11



Appendix I: Default Methodology And Definitions

This long-term corporate default and rating transition study uses S&P Global MarketIntelligence's CreditPro® database of long-term local currency issuer credit ratings. Most tablesand charts in this study are the direct output of the CreditPro® application, while others are basedon manipulation of the underlying database.

An issuer credit rating reflects S&P Global Ratings' forward-looking opinion of a company's overallcreditworthiness. This opinion focuses on the obligor's capacity and willingness to meet itsfinancial commitments as they come due. It does not apply to any specific financial obligationbecause it does not take into account the nature and provisions of the obligation, its standing inbankruptcy or liquidation, its statutory preferences, or the legality and enforceability of theobligation. It is not necessary for a company to have rated debt to have an issuer credit rating.

Although the ratings on a company's very senior forms of secured debt, particularly ones withstrong covenants, could occasionally be higher than the issuer credit rating on the company,specific issues are typically rated as high as or lower than these issuer ratings, depending on theirrelative priority within the company's debt structure. If they are speculative grade, issuer creditratings are generally two notches higher than subordinated debt ratings. Otherwise, they aregenerally one notch higher. Therefore, although a 'BB+' issuer credit rating is generally paired witha 'BB-' subordinated debt rating, a 'AA' issuer credit rating usually corresponds to a 'AA-'subordinated rating.

S&P Global Fixed Income Research's ongoing enhancement of the CreditPro® database used togenerate this study could lead to outcomes that differ to some degree from those reported inprevious studies. However, this poses no continuity problem because each study reports statisticsback to Dec. 31, 1980. Therefore, each annual default study is self-contained and effectivelysupersedes all previous versions.

Issuers included in this study

This study analyzes the rating histories of 861 Greater China entities that S&P Global Ratingsrated from Jan. 1, 2000, through Dec. 31, 2017. These include industrials, utilities, financialinstitutions, and insurance entities with long-term local currency ratings. The analysis excludespublic information ("pi") ratings and ratings based on the guarantee of another company.Structured finance vehicles, public-sector issuers, and sovereign issuers are the subjects ofseparate default and transition studies, and we excluded these from this study.

To avoid overcounting, the CreditPro® database excludes subsidiaries with debt that is fullyguaranteed by a parent or with default risk that is considered identical to that of a parent. Thelatter are entities with obligations that are not legally guaranteed by a parent but that haveoperating or financing activities that are so inextricably entwined with those of the parent that itwould be impossible to imagine the default of one and not the other. At times, however, some ofthese subsidiaries might not yet have been covered by a parent's guarantee, or the relationshipthat combines the default risk of parent and subsidiary might have come to an end or might nothave begun. We included such subsidiaries for the period during which they had a distinct andseparate risk of default.

Issuers with withdrawn ratings

S&P Global Ratings withdraws ratings when an entity's entire debt is paid off or when the program



or programs rated are terminated and the relevant debt extinguished. For the purposes of thisstudy, a rating may be withdrawn as a result of mergers and acquisitions. Others are withdrawnbecause of a lack of cooperation, particularly when a company is experiencing financial difficultiesand refuses to provide all the information needed to continue surveillance on the ratings, or at theentity's request.

Definition of default

An obligor rated 'SD' (selective default) or 'D' (default) is in payment default on one or more of itsfinancial obligations (rated or unrated) unless S&P Global Ratings believes that such paymentswill be made within five business days, irrespective of any grace period. S&P Global Ratings alsolowers a rating to 'D' upon an issuer's filing for bankruptcy or taking a similar action thatjeopardizes payments on a financial obligation.

A 'D' rating is assigned when S&P Global Ratings believes that the default will be a general defaultand that the obligor will fail to pay all or substantially all of its obligations as they come due. S&PGlobal Ratings assigns an 'SD' rating when it believes that the obligor has selectively defaulted ona specific issue or class of obligations but will continue to meet its payment obligations on otherissues or classes of obligations in a timely manner. A selective default includes the completion ofa distressed exchange offer, whereby one or more financial obligations is either repurchased foran amount of cash or replaced by other instruments having a total value that is less than par. 'R'(regulatory intervention) indicates that an obligor is under regulatory supervision owing to itsfinancial condition. This does not necessarily indicate a default event, but the regulator mighthave the power to favor one class of obligations over others or pay some obligations and notothers. Preferred stock is not considered a financial obligation; thus, a missed preferred stockdividend is not normally equated with default.

We deem 'D', 'SD', and 'R' issuer credit ratings to be defaults for the purposes of this study. Adefault is assumed to take place on the earliest of: the date S&P Global Ratings revised therating(s) to 'D', 'SD', or 'R'; the date a debt payment was missed; the date a distressed exchangeoffer was announced; or the date the debtor filed or was forced into bankruptcy.

When an issuer defaults, it is not uncommon for S&P Global Ratings to subsequently withdraw the'D' rating. For the purposes of this study, if an issuer defaults, we end its rating history at 'D'. If anydefaulting entity reemerges from bankruptcy, or otherwise restructures its defaulted debtinstruments, thereby reestablishing regular, timely payment of all its debts, we reenter this issuerinto the database as a new entity. Its rating history after the default event is included in allcalculations as entirely separate from its experience leading up to its earlier default.

Calculations

Static pool methodology. S&P Global Fixed Income Research conducts its default studies on thebasis of groupings called static pools. For the purposes of this study, we form static pools bygrouping issuers by rating category at the beginning of each year that the CreditPro® databasecovers. Each static pool is followed from that point forward. All entities included in the study areassigned to one or more static pools. When an issuer defaults, we assign that default back to all ofthe static pools to which the issuer belonged.

We use the static pool methodology to avoid certain pitfalls in estimating default rates. This is toensure that default rates account for rating migration and to allow for default rates to becalculated across multiperiod time horizons. Some methods for calculating default and rating



transition rates might charge defaults against only the initial rating on the issuer, ignoring morerecent rating changes that supply more current information. Other methods may calculate defaultrates using only the most recent year's default and rating data, which may yield comparatively lowdefault rates during periods of high rating activity because they ignore prior years' default activity.

The pools are static in the sense that their membership remains constant over time. Each staticpool can be interpreted as a buy-and-hold portfolio. Because errors, if any, are corrected by everynew update and because the criteria for inclusion or exclusion of entities in the default study aresubject to minor revisions as time goes by, it is not possible to compare static pools acrossdifferent studies. Therefore, every new update revises results back to the same starting date ofDec. 31, 2000, so as to avoid continuity problems.

Entities that have had ratings withdrawn--that is, revised to not rated--are surveilled with the aimof capturing a potential default. Because static pools only include entities with active ratings as ofthe beginning date of a given pool, we exclude entities with withdrawn ratings, as well as thosethat have defaulted, from subsequent static pools. If the rating on an entity is withdrawn after thestart date of a particular static pool and the entity subsequently defaults, we will include it in thatstatic pool as a default and categorize it in the rating category of which it was a member at thattime.

For instance, the 2000 static pool consists of all entities rated as of 12:01 a.m. on Jan. 1, 2000.Adding those entities first rated in 2000 to the surviving members of the 2000 static pool forms the2001 static pool. All rating changes that took place are reflected in the newly formed 2001 staticpool through the ratings on these entities as of 12:01 a.m. on Jan. 1, 2001. We used the samemethod to form static pools for 2000 through 2017.

Consider the following example: An issuer is originally rated 'BB' in mid-2006 and is downgradedto 'B' in 2008. This is followed by a rating withdrawal in 2010 and a default in 2013. We wouldinclude this hypothetical company in the 2007 and 2008 pools with the 'BB' rating, which was therating on the issuer at the beginning of those years. Likewise, it would be included in the 2009 and2010 pools with the 'B' rating. It would not be part of the 2006 pool because it was not rated as ofthe first day of that year, and it would not be included in any pool after the last day of 2010because the rating had been withdrawn by then. Yet each of the four pools in which this companywas included (2007-2010) would record its 2013 default at the appropriate time horizon.

Default rate. We calculated annual default rates for each static pool, first in units and then aspercentages with respect to the number of issuers in each rating category. Finally, we combinedthese percentages to obtain cumulative default rates for the 16 years covered by the study.

Issuer-weighted default rates. All default rates that appear in this study are based on thenumber of issuers rather than the dollar amounts affected by defaults or rating changes. Althoughdollar amounts provide information about the portion of the market that is affected by defaults orrating changes, issuer-weighted averages are more useful measures of the performance ofratings.

Many practitioners utilize statistics from this default study and CreditPro® to estimate"probability of default" and "probability of rating transition." It is important to note that S&PGlobal Ratings' credit ratings do not imply a specific probability of default.

Cumulative average default rates. We derived cumulative default rates that average theexperience of all static pools by calculating marginal default rates, conditional on survival(survivors being nondefaulters), for each possible time horizon and for each static pool,weight-averaging the conditional marginal default rates, and accumulating the average



conditional marginal default rates. Conditional default rates are calculated by dividing the numberof issuers in a static pool that default at a specific time horizon by the number of issuers thatsurvived (did not default) to that point in time. Weights are based on the number of issuers in eachstatic pool. Cumulative default rates are one minus the product of the proportion of survivors(nondefaulters).

For instance, the hypothetical weighted-average first-year default rate for 'B' rated entities inGreater China for all 17 pools was 5%, meaning that an average of 95% survived one year.Similarly, the second- and third-year conditional marginal averages were 6% for the first 16 pools(95% of those entities that did not default in the first year survived the second year) and 4% for thefirst 15 pools (96% of those entities that did not default by the second year survived the thirdyear). Multiplying 95% by 94% results in an 89.30% survival rate to the end of the second year,which yields a two-year cumulative average default rate of 10.70%. Multiplying 89.30% by 96%results in an 85.73% survival rate to the end of the third year, which yields a three-year cumulativeaverage default rate of 14.27%.

Time sample. This update limits the reporting of default rates in Greater China to the 17-year timehorizon, and we based all calculations on the rating experience of that period. Global data arebased on a 37-year time horizon. The maturities of most obligations are much shorter than 17years. In addition, average default statistics become less reliable at longer time horizons becausethe sample size becomes smaller and the cyclical nature of default rates has a bigger effect onaverages.

Default patterns share broad similarities across all static pools, suggesting that S&P GlobalRatings' credit rating standards have been consistent over time. Adverse business conditions tendto coincide with default upswings for all pools. These upswings have hit speculative-grade issuersthe hardest, but investment-grade default rates also increase during stressful periods.

Transition analysis

Transition rates compare issuer credit ratings at the beginning of a period with ratings at the endof the period. To compute one-year rating transition rates by rating category, we compared therating on each entity at the end of a particular year with the rating at the beginning of the sameyear. An issuer that remained rated for more than one year was counted as many times as thenumber of years it was rated. For instance, an issuer continually rated from the middle of 2004 tothe middle of 2011 would appear in the six consecutive one-year transition matrices from2005-2010. All 2003 static pool members still rated on Dec. 31, 2015, had 12 one-year transitions,while entities first rated between Jan. 1, 2015, and Dec. 31, 2015, had only one.

Each one-year transition matrix displays all rating movements between letter categories from thebeginning of the year through year-end. For each rating listed in the matrix's leftmost column,there are nine ratios listed in the rows, corresponding to the ratings from 'AAA' to 'D', plus an entryfor "NR." For instance, the first panel of table 10, which corresponds to the 2017 static pool,shows that out of all 'A' rated entities at the beginning of that year, 93.15% were rated the same atyear-end, while S&P Global Ratings had upgraded 1.85% to 'AA', and so on.

Average one-year transition matrices were calculated on the basis of the one-year transitionmatrix just described. The ratios represent the historical incidence of the ratings listed in the firstcolumn changing to the ones listed in the top row over the course of the reference period.



Multiyear transitions. We also calculated multiyear transitions for periods of two to five years. Inthis case, we compared the rating at the beginning of the multiyear period with the rating at theend. For example, two-year transition matrices were the result of comparing ratings at thebeginning of the years 2000-2016 with the ratings at the end of the years 2000-2017 (see table12). Otherwise, the methodology was identical to that used for single-year transitions.

Comparing transition rates with default rates. For more information on the differences betweentransition rates and default rates, please see the section "Comparing transition rates with defaultrates" in Appendix I of the "2017 Annual Global Corporate Default Study."

Appendix II: Additional Tables

Table 17

Static Pool Cumulative Corporate Default Rates Among All Rated Greater ChinaCompanies (2000-2017)

(%)

--Time horizon (years)--

YearIssuercount 1 2 3 4 5 6 7 8 9 10

2000 70 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.43 1.43 1.43

2001 78 0.00 0.00 0.00 0.00 0.00 0.00 1.28 1.28 1.28 1.28

2002 87 0.00 1.15 1.15 1.15 1.15 2.30 2.30 2.30 2.30 2.30

2003 134 0.75 0.75 0.75 0.75 1.49 1.49 1.49 1.49 1.49 1.49

2004 134 0.00 0.00 0.00 0.75 0.75 0.75 1.49 1.49 1.49 1.49

2005 149 0.00 0.00 0.67 0.67 1.34 2.01 2.01 2.68 2.68 2.68

2006 159 0.63 1.26 1.26 1.89 2.52 2.52 3.14 3.14 3.14 3.14

2007 122 0.82 1.64 2.46 3.28 3.28 4.10 4.10 4.10 4.92 4.92

2008 139 2.16 4.32 5.04 5.04 5.76 5.76 5.76 6.47 6.47 6.47

2009 159 2.52 3.14 3.14 3.77 3.77 3.77 4.40 5.03 5.03

2010 148 0.68 0.68 1.35 1.35 1.35 2.03 2.03 2.03

2011 160 0.00 1.25 1.88 2.50 4.38 4.38 4.38

2012 198 0.51 1.52 2.02 4.04 4.04 4.55

2013 209 0.96 1.44 3.35 3.35 3.83

2014 248 0.40 2.42 2.42 2.82

2015 300 2.00 2.00 2.33

2016 368 0.00 0.27

2017 460 0.22

Summary statistics

Marginalaverage

0.66 0.63 0.45 0.46 0.42 0.30 0.27 0.30 0.08 0.00

Cumulativeaverage

0.66 1.29 1.73 2.19 2.60 2.89 3.15 3.44 3.52 3.52



Table 17

Static Pool Cumulative Corporate Default Rates Among All Rated Greater ChinaCompanies (2000-2017) (cont.)

Standarddeviation

0.80 1.20 1.39 1.58 1.79 1.81 1.66 1.69 1.84 1.80

Median 0.45 1.25 1.61 1.89 2.00 2.30 2.16 2.30 2.49 2.30

Minimum 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.28 1.28 1.28

Maximum 2.52 4.32 5.04 5.04 5.76 5.76 5.76 6.47 6.47 6.47


Table 18

Static Pool Cumulative Corporate Default Rates Among All Investment-GradeGreater China Companies (2000-2017)

(%)



2000 28 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2001 31 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2002 41 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2003 56 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2004 67 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2005 80 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2006 90 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2007 85 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2008 95 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2009 111 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2010 111 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2011 119 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2012 128 0.00 0.00 0.00 0.00 0.00 0.00

2013 142 0.00 0.00 0.00 0.00 0.00

2014 173 0.00 0.00 0.00 0.00

2015 217 0.00 0.00 0.00

2016 277 0.00 0.00

2017 334 0.00

Summary statistics

Marginalaverage

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Cumulativeaverage

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00



Table 18

Static Pool Cumulative Corporate Default Rates Among All Investment-GradeGreater China Companies (2000-2017) (cont.)

Standarddeviation

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Median 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Minimum 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Maximum 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00


Table 19

Static Pool Cumulative Corporate Default Rates Among All Speculative-GradeGreater China Companies (2000-2017)

(%)



2000 42 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.38 2.38 2.38

2001 47 0.00 0.00 0.00 0.00 0.00 0.00 2.13 2.13 2.13 2.13

2002 46 0.00 2.17 2.17 2.17 2.17 4.35 4.35 4.35 4.35 4.35

2003 78 1.28 1.28 1.28 1.28 2.56 2.56 2.56 2.56 2.56 2.56

2004 67 0.00 0.00 0.00 1.49 1.49 1.49 2.99 2.99 2.99 2.99

2005 69 0.00 0.00 1.45 1.45 2.90 4.35 4.35 5.80 5.80 5.80

2006 69 1.45 2.90 2.90 4.35 5.80 5.80 7.25 7.25 7.25 7.25

2007 37 2.70 5.41 8.11 10.81 10.81 13.51 13.51 13.51 16.22 16.22

2008 44 6.82 13.64 15.91 15.91 18.18 18.18 18.18 20.45 20.45 20.45

2009 48 8.33 10.42 10.42 12.50 12.50 12.50 14.58 16.67 16.67

2010 37 2.70 2.70 5.41 5.41 5.41 8.11 8.11 8.11

2011 41 0.00 4.88 7.32 9.76 17.07 17.07 17.07

2012 70 1.43 4.29 5.71 11.43 11.43 12.86

2013 67 2.99 4.48 10.45 10.45 11.94

2014 75 1.33 8.00 8.00 9.33

2015 83 7.23 7.23 8.43

2016 91 0.00 1.10

2017 126 0.79

Summary statistics

Marginalaverage

1.93 1.82 1.25 1.26 1.12 0.77 0.68 0.73 0.20 0.00

Cumulativeaverage

1.93 3.72 4.92 6.11 7.16 7.88 8.51 9.18 9.36 9.36



Table 19

Static Pool Cumulative Corporate Default Rates Among All Speculative-GradeGreater China Companies (2000-2017) (cont.)

Standarddeviation

2.70 3.95 4.65 5.27 6.24 6.40 6.33 6.32 6.97 6.66

Median 1.31 2.90 5.56 5.41 5.60 5.80 5.80 5.80 5.07 4.35

Minimum 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.13 2.13 2.13

Maximum 8.33 13.64 15.91 15.91 18.18 18.18 18.18 20.45 20.45 20.45


Table 20

Average Two-Year Greater China Corporate Transition Matrix (2000-2017)

(%)


AAA 83.33 16.67 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 6.71 73.83 17.45 0.00 0.00 0.00 0.00 0.00 2.01

A 0.00 3.58 86.72 4.85 0.00 0.00 0.00 0.00 4.85

BBB 0.00 0.00 6.97 79.19 3.94 0.00 0.00 0.00 9.90

BB 0.00 0.00 0.17 5.06 56.49 8.60 0.67 1.18 27.82

B 0.00 0.00 0.00 0.79 7.63 47.37 3.95 5.00 35.26

CCC/C 0.00 0.00 0.00 0.00 0.00 13.16 18.42 34.21 34.21


Table 21

Average Three-Year Greater China Corporate Transition Matrix (2000-2017)

(%)


AAA 80.00 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 10.85 67.44 17.83 0.00 0.00 0.00 0.00 0.00 3.88

A 0.00 4.68 81.57 6.50 0.00 0.00 0.00 0.00 7.25

BBB 0.00 0.00 10.42 70.84 4.88 0.00 0.00 0.00 13.85

BB 0.00 0.00 0.37 7.59 41.30 10.00 1.48 1.85 37.41

B 0.00 0.00 0.00 0.58 10.40 30.35 2.89 7.51 48.27

CCC/C 0.00 0.00 0.00 0.00 0.00 11.76 2.94 38.24 47.06




Table 22

Average Five-Year Greater China Corporate Transition Matrix (2000-2017)

(%)


AAA 66.67 33.33 0.00 0.00 0.00 0.00 0.00 0.00 0.00

AA 22.00 52.00 21.00 0.00 0.00 0.00 0.00 0.00 5.00

A 0.00 6.45 74.40 8.47 0.00 0.00 0.00 0.00 10.69

BBB 0.00 0.17 14.49 56.37 4.01 0.00 0.00 0.00 24.96

BB 0.00 0.00 0.46 10.07 24.94 7.78 0.69 4.81 51.26

B 0.00 0.00 0.00 0.00 7.41 14.48 1.01 8.42 68.69

CCC/C 0.00 0.00 0.00 0.00 0.00 0.00 0.00 25.00 75.00


Table 23

Greater China Defaults (2000-2017)

Issuer Country IndustryDefaultdate

Ratingprior todefault

Rating date forrating prior todefault

Reason fordefault

Tianjin InternationalTrust & InvestmentCorp.

China Financial institutions 12/16/2000 NR 8/2/1999 Missed interestpayment

Fujian InternationalTrust & InvestmentCorp.

China Financial institutions 1/24/2002 NR 8/2/1999 Liquidation

Mosel Vitelic Inc. Taiwan Hightech/computers/officeequipment

4/25/2003 NR 3/25/2003 Missed principalpayment

Ocean GrandHoldings Ltd.

HongKong

Aerospace/auto/capitalgoods/metals

7/25/2006 B 7/20/2006 Appointment ofprovisionalliquidator

ASAT Holdings Ltd. HongKong


8/3/2007 CCC 12/15/2006 Missed interestpayment and debtrestructuring

3D-Gold JewelleryHoldings Ltd.

HongKong

Consumer/service 10/15/2008 BB 10/2/2007 Missed interestpayment andrequest forstandstill

ASAT Holdings Ltd.(A)

HongKong


2/2/2009 CC 12/16/2008 Missed interestpayment

Asia AluminumHoldings Ltd.

China Aerospace/auto/capitalgoods/metals

3/17/2009 CC 2/16/2009 Appointment ofprovisionalliquidator

China GlassHoldings Ltd.

China Aerospace/auto/capitalgoods/metals

8/4/2009 CC 6/5/2009 Distressedexchange

TitanPetrochemicalsGroup Ltd.

HongKong

Transportation 7/21/2010 CC 12/8/2009 Distressedexchange



Table 23

Greater China Defaults (2000-2017) (cont.)

Issuer Country IndustryDefaultdate

Ratingprior todefault

Rating date forrating prior todefault

Reason fordefault

China MedicalTechnologies Inc.

China Health care/chemicals 1/31/2012 B+ 9/21/2010 Missed interestpayment

Sino-Forest Corp. China Forest and buildingproducts/homebuilders

3/30/2012 NR 8/30/2011 Missed interestpayment

WinswayEnterprisesHoldings Ltd.

China Transportation 10/10/2013 CC 8/21/2013 Distressedexchange

China ForestryHoldings Co. Ltd.

China Forest and buildingproducts/homebuilders

11/19/2013 CCC- 8/4/2011 Missed interestpayment

LDK Solar Co. Ltd. China Hightech/computers/officeequipment

10/21/2014 NR 9/8/2011 Missed principalpayment

Hidili IndustryInternationalDevelopment Ltd.

China Energy and naturalresources


Kaisa GroupHoldings Ltd.

China Forest and buildingproducts/homebuilders

1/5/2015 BB- 5/2/2014 Missed principalpayment

Renhe CommercialHoldings Co. Ltd.

China Real estate 1/8/2015 CC 11/26/2014 Distressedexchange

WinswayEnterprisesHoldings Ltd. (A)

China Transportation 4/27/2015 CCC 10/28/2013 Missed interestpayment

Hidili IndustryInternationalDevelopment Ltd.(A)

China Energy and naturalresources

11/4/2015 CCC- 4/27/2015 Missed interestand principalpayment

China ShanshuiCement Group Ltd.

HongKong

Forest and buildingproducts/homebuilders

11/13/2015 CC 11/6/2015 Missed principalpayment

China Fishery GroupLtd.

HongKong

Consumer/service 11/26/2015 CCC+ 10/19/2015 Missed loanpayment

MIE Holdings Corp. CaymanIslands

Energy and naturalresources


Note: Excludes four confidential issuers. NR--Not rated. Sources: S&P Global Fixed Income Research and S&P Global Market Intelligence'sCreditPro®.

Appendix III: Gini Methodology

To measure ratings performance, or ratings accuracy, we plotted the cumulative share of issuersby rating against the cumulative share of defaulters in a Lorenz curve to visually render theaccuracy of their rank ordering. The Lorenz curve was developed by Max O. Lorenz as a graphicalrepresentation of the proportionality of a distribution. To build the Lorenz curve, the observationsare ordered from the low end of the ratings scale ('CCC'/'C') to the high end ('AAA'). If S&P GlobalRatings' corporate ratings only randomly approximated default risk, the Lorenz curve would fallalong the diagonal. Their Gini coefficient--which is a summary statistic of the Lorenz curve--would



thus be zero. If corporate ratings were perfectly rank ordered so that all defaults occurred onlyamong the lowest-rated entities, the curve would capture all of the area above the diagonal on thegraph, and its Gini coefficient would be 1 (see chart 12).

The procedure for calculating the Gini coefficients is to divide area B by the total of area A plusarea B. In other words, the Gini coefficient captures the extent to which actual ratings accuracydiverges from the random scenario and aspires to the ideal scenario.

Chart 12

Appendix IV: Defaults In Profile

In 2017, there was one corporate default in Greater China, affecting $700 million of debt.

Table 24

Issuer Credit Rating History--MIE Holdings Corp.

Date To

28-Aug-2017 CCC-/Negative/--

28-Aug-2017 SD/NM/--

12-Jun-2017 CC/Negative/--

11-Apr-2017 CCC/Negative/--

25-Jan-2016 B-/Negative/--

7-Aug-2015 B/Watch Neg/--

19-Jan-2015 B/Stable/--

26-Apr-2011 B+/Stable/--



Default Studies

More analysis and statistics are available in our annual default studies, published onRatingsDirect:

Corporate (financial and nonfinancial)

- 2017 Annual Global Corporate Default Study And Rating Transitions

- 2017 Annual U.S. Corporate Default Study And Rating Transitions

- 2017 Annual Asia (Excluding Japan) Corporate Default Study And Rating Transitions

- 2017 Annual Latin American Corporate Default Study And Rating Transitions

- Japanese Issuer Credit Rating Transitions Study 2017

- 2017 Annual Taiwan Ratings Corp. Corporate Default Study And Rating Transitions

- 2016 Inaugural Global Financial Services Default Study And Rating Transitions

- 2016 Annual Global Leveraged Loan CLO Default Study And Rating Transitions

- 2016 Greater China Corporate Default Study And Rating Transitions

- 2016 Mexican Corporate And Public Finance Default Study And Rating Transitions

- 2016 Annual Mexican Structured Finance Default Study And Rating Transitions

- 2016 Annual Canadian Corporate Default Study And Rating Transitions

- 2016 Annual European Structured Finance Default Study And Rating Transitions

- 2016 Asia (Excluding Japan) Corporate Default Study And Rating Transitions

- 2016 Annual Australia And New Zealand Corporate Default Study And Rating Transitions

- 2016 Annual European Corporate Default Study And Rating Transitions

- 2016 Annual Brazil Corporate Default Study And Rating Transitions

- 2016 Emerging Markets Corporate Default Study And Rating Transitions

- 2016 Annual Latin American Corporate Default Study And Rating Transitions

Structured finance

- 2017 Annual Japanese Structured Finance Default Study And Rating Transitions

- 2017 Annual Taiwan Structured Finance Default Study And Rating Transitions

- 2017 Annual Global Structured Finance Default Study And Rating Transitions

- 2016 Annual Mexican Structured Finance Default Study And Rating Transitions

- 2016 Annual European Structured Finance Default Study And Rating Transitions



U.S. public finance

- 2017 Annual U.S. Public Finance Default Study And Rating Transitions

- 2017 Annual U.S. Public Finance Charter School Default Study And Rating Transitions

- 2017 Annual U.S. Public Finance Higher Education And Nonprofit Organization Default StudyAnd Rating Transitions

- 2016 U.S. Public Finance Utility Default Study And Rating Transitions

- 2016 U.S. Public Finance Transportation Default Study And Rating Transitions

- 2016 U.S. Public Finance Housing Default Study And Rating Transitions

- 2016 U.S. Public Finance Higher Education And Nonprofit Organizations Default Study AndRating Transitions

- 2016 U.S. Public Finance Not-For-Profit Health Care Default Study And Rating Transitions

Sovereign and international public finance

- 2017 Annual International Public Finance Default Study And Rating Transitions

- 2017 Annual Sovereign Default Study And Rating Transitions

The use of the term "methodology" in this article refers to data aggregation and calculation methods used in conductingthe research. It does not relate to S&P Global Ratings' methodologies, which are publicly available criteria used todetermine credit ratings.

This report does not constitute a rating action.





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2017 Annual Greater China Corporate Default Study And ... · 'AA-/A-1+' on Sept. 21, 2017. The outlook is stable, reflecting S&P Global Ratings' view that China will maintain its