The corporate bond market of China has surpassed the US to become the biggest corporate borrower in the world set to take up a third of company debt needs in the next five years, according to a report by ratings firm Standard & Poor's.

By the end of 2013, corporate borrowers from China owed a total of $14.2 trillion compared to the $13.1 trillion that American borrowers owed, S&P said on Monday. The swapping of rankings had taken place a year earlier than was expected, Reuters reported.

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The Asia-Pacific region, with China as the top borrower, is seen making up half of the world's corporate debt needs totaling $60 trillion over the next five years until 2018. By then, the whole region will account for over half of the projected total global debt totaling $72 trillion.

China, the second-biggest economy in the world, is presently funding between a fourth and a third of its corporate debt using the country's shadow banking industry. S&P said this means that around 10% of the world's corporate debt, or an estimated $4 trillion to $5 trillion, is at risk of being contracted in the informal banking sector of China.

Once the best in 2009, Chinese corporations' cash flows and leverage have fallen down to become one of the worst in the world, based on S&P's financial risk trend measure. The nation's property and steel sectors are of major concern, since the slow growth in the property sector has pulled down the demand in steel products.

The financial agency also said that China's large and growing contributions to the world's corporate debt is increasing the risk in the global corporate world. Being the second-largest economy, any changes in China's corporate industry could quickly affect other countries.

Due to growing concerns of investors over credit risks, a number of Chinese property and steel firms have recently scrapped their plans to issue bonds in the local market. Compared to those with AAA ratings, the bond yields on weaker credits have experienced faster increases.

In the previous year, the Thomson Reuters onshore benchmark for AA-rated firms for onshore China debt has gone up 120 basis points to hit 6.70%. Meanwhile, the AAA-rated curve has climbed up 80 basis points to hit 5.50% within the same period.

TagsChina Inc, corporate bond market, S&P