A woman walks past the headquarters of the People’s Bank of China in Beijing, China.
Jason Lee | Reuters
BEIJING: Data for the year so far show signs that China is beginning to crack down on debt.
A first-quarter poll from the China Beige Book released Thursday revealed that state-owned corporate debt fell to its lowest in the study’s roughly ten-year history. Global debt fell to a three-year low, while that of large companies hit a five-year low, according to the report.
Given ties to the state, government-linked companies are the “best sign” of the authorities ’political intent, said Shehzad Qazi, general manager of China’s Beige Book, Shehzad Qazi. The company conducts quarterly business surveys in China.
Economists point out that China’s relatively low GDP target, above 6% this year, gives policymakers the ability to deal with problems such as high debt levels, without having to worry too much about growth. Before the coronavirus pandemic last year, China had tried to curb this debt growth with mixed results.
While Qazi noted that more quarterly data will be needed to see if China has re-entered “deleveraging” mode, there are other indications that authorities are trying to control the debt.
China’s debt-to-GDP ratio rose to 285% at the end of the third quarter of 2020, compared to an average of 251% between 2016 and 2019, according to an Allianz report on Monday, citing its subsidiary Euler Hermes.
While this debt-to-GDP ratio has not declined, it has stabilized, former economist Francoise Huang said in a telephone interview on Tuesday. “Stabilization is already a good sign and probably one of the goals of the Chinese politicians’ deleveraging campaign.”
He noted that a national debt measure called aggregate financing has slowed its growth since October.
In year-on-year and year-on-year terms, aggregate financing in the real economy grew 44.39% in October, but has since fallen, according to Wind Information. The figure showed an increase of 16.19% in February.
Chinese regulators have warned in recent weeks about financial risks, especially in stocks and the real estate market. Premier Li Keqiang earlier this month said in an annual report on the economy that China has recovered enough from the coronavirus pandemic and that no related bond issuance is planned.
One of the concerns of this backlash of support is that banks may not be as eager to lend to smaller, privately run companies as they were during the pandemic, when Beijing specifically encouraged such lending. China’s major banks are state-owned and prefer to work with state-owned companies rather than riskier private companies. But the private sector contributes to most jobs and growth in China.
“I think policymakers want private companies and especially (small and medium enterprises) not to worry about this deleveraging,” Huang said. “But I think in the end it can be something that concerns all kinds of companies.”
Bank loans for carbon emissions purposes
Moody’s expects credit growth to be “more moderate this year,” mainly because there are new restrictions on lending in real estate-related industries, said Nicholas Zhu, vice president and senior credit officer at Moody’s Investor Service.
He added that China’s emphasis on maximum carbon emissions in 2030 will generate more demand from companies to fund renewable energy-related projects. But he said banks will be more cautious when issuing loans because of past experience with Chinese solar companies, many of which failed.