The industrial profits in state-owned enterprises (SOEs) of China are fallen by 9.2% y/y YTD in October. Corporate indebtedness has raised the credit concerns among commercial banks and poses a significant downside risk to economic growth as well. 

According to China's Ministry of Finance report, the total debt in the SOEs has increased by  19.0% y/y and stood at CNY77.9trn or about 120% of GDP at end-October. The debt in central SOEs was increased by 24.2% y/y and reached CNY42.9trn. Similarly, the debt in local SOEs was CNY35.0trn, which is increased by 13.1% y//y. 

"On the policy side, we believe that China will likely further cut policy rates in the foreseeable future to lower the debt burden for the corporates. Notably, easing monetary policy stance could also lead to further weakness in CNY exchange rate over time", argues Commerzbank.