Consumers seek a piece of the action as China debt mounts
RDB closes bidding on rice storage facilities
OVER the past eight years, to the world’s growing alarm, China’s big state-owned companies and powerful local governments have borrowed trillions of dollars to get what they want.
Now, it’s Li Jing’s turn.
Li, a 33-year-old car saleswoman here in the middle of China’s declining industrial zone, is one of the growing millions of Chinese using mortgages and credit cards to finance a middle-class lifestyle. Over the past two years, she and her husband have bought and remodelled a $120,000 apartment and purchased two new cars for $30,000 apiece.
To help pay for it all, they took out a 10-year mortgage that absorbs nearly a third of their monthly income – once considered an unusual amount of debt in a country that used to depend almost solely on cash.
“I view the mortgage as a form of savings,” Li said, “because in 10 years, I’ll own the whole apartment.”
Standard & Poor’s on Thursday became the latest voice to warn that China, which has the world’s second-largest economy after the United States, has piled on too much debt and done it too quickly. The steep increase has the potential to destabilise the country’s financial system, the ratings agency warned, which could hurt the prospects of a country that has been the single biggest driver of global growth for a decade.
While critics have focused on borrowing by local governments and companies, China’s consumers – once famous for saving rather than spending – are also quickly taking on debt.
Chinese central bank data shows that consumer loans have grown almost 50 percent since the start of last year, when the government began encouraging more lending to households. That lending could grow considerably higher: The International Monetary Fund said it expected China’s household debt as a percentage of its economic output to double by 2022 compared with a decade before.
Home mortgages represent a majority of China’s new household loans by value, adding to a surge in real estate prices. Car loans have been growing even faster in percentage terms. And credit card debt is now rising in a country that is otherwise dependent on cash or online transactions.
There are signs that China is moving on the fringes to con- tain mortgage lending, in part to tame housing costs. In the past week, banks in Beijing began raising mortgage interest rates. In a lengthening list of China’s largest cities, banks are under instructions to discourage the use of personal loans for real estate speculation. Six large cities established new home sales restrictions in recent days to cool off prices.
Surging property prices have helped keep consumer spending high even as China’s growth has slowed, giving its economy a lift. But more debt may not spur more growth – and could pinch the household finances of some.
“China will get less of a kick out of consumer debt in the coming 18 months than it did in the past 18 months,” said Louis Kuijs, an economist with Oxford Economics, a British research firm.
Some economists also worry that consumer loans may be a backdoor way for bloated companies to maintain or even expand their capacity. China’s domestic automakers – many of which are state-owned and suffer from too many underused factories – have unleashed a blizzard of zero-interest car loans in the past two years, often through their own financing subsidiaries. In that time, the majority of Chinese consumers began to pay for cars with credit instead of cash, according to JD Power and Associates, a global consulting firm.
To be clear, most economists consider China’s consumer credit splurge to be a good thing. Chinese families are nowhere near the borrowing levels of spendthrift Americans, whose household debt is equal to more than three-quarters of the annual economic output of the United States. In China, that measure is still less than half.
Chinese leaders envision a time when their country, like the United States, derives a major chunk of its economic growth from people buying homes, cars and appliances. To do that, Chinese households need better access to mortgages, credit cards and other ways to enhance their purchasing power.
Traditionally, China’s statecontrolled banking system focused on lending money to big state-owned companies. Economists view household lending as an appealing alternative to having banks shovel more money into unprofitable, debtridden state firms that cannot be closed because they provide jobs to millions of workers.
So far, consumer lending has helped Chinese consumers weather the gradual slowdown in the country’s economic growth in recent years. That is particularly true in places like Qiqihar, a city of 5 million in the northeastern province of Heilongjiang. The local economy took a hit last year when a large steel mill closed a big blast furnace and overstaffed communal- and state-owned enterprises pushed out more than 40,000 workers.
Borrowing has been a big help, residents say. Where apartments once sold for cash only, many people now offer down payments of between 20 percent and 30 percent and take out mortgages for the rest.
“Certainly more people tend to borrow when purchasing apartments,” said Fu Shiqiang, a real estate agent.
“They may want to get a bigger apartment or do business.” THE state-run Rural Development Bank (RDB) received a total of 10 proposals from Cambodian agricultural firms expressing interest in developing rice storage and drying facilities across three provinces using government-backed lowinterest loans, a bank official said yesterday.
Kao Thach, chief executive of RDB, said six more companies submitted proposals for the $15 million finance package after the bank extended the application deadline from September 8 to September 22 due to a low response. Only four companies submitted proposals during the initial three-week call for submissions.
“Now that we have received enough proposals for selection, we will finalise the agreements and announce the [awarded] companies in October, as well as the location of the facilities,” Thach said, adding that the loans would be disbursed to only three companies.
The three proposed facilities are set to be constructed in the provinces of Kampong Thom, Prey Veng and Takeo, each with the capacity to store 50,000 tonnes of paddy rice and dry approximately 1,500 tonnes of rice daily. The storage facilities are intended to alleviate the stress on farmers and millers when rice stockpiles begin to stack up and are expected to be operational by the start of the next harvest season in January.
Song Saran, CEO of Amru Rice, said his firm submitted a proposal to build and operate a $5 million facility in Kampong Thom province on 25,000 square metres of land that would include four different warehouses.
“My proposal shows a fiveyear and 10-year plan that would insure the capacity of storage and stabilise the market for farmers,” he said.
Saran added that the construction of adequate storage and drying facilities was imperative if Cambodia’s rice sector hopes to compete internationally on price when dealing with government-to-government bids.
Earlier this year RDB awarded a $15 million low-interest loan to Thanakea Srov (Kampuchea) Plc, the operator of the Cambodian Rice Bank, to expand its rice storage warehouse in Battambang province. The warehouse is set to be the first privately owned centralised storage facility with a capacity to store 200,000 tonnes of wet paddy rice and to process 3,000 tonnes of paddy rice daily.