Group will tackle mount­ing debt

China Daily (Canada) - - TOP NEWS - ByWANG YANFEI wangyan­fei@ chi­nadaily.com.cn

China’s cen­tral gov­ern­ment will es­tab­lish a lead­ing group with a clear man­date to deal with grow­ing debt, which has be­come a ma­jor con­cern for the world’s sec­ond-largest econ­omy, a se­nior gov­ern­ment econ­o­mist said onWed­nes­day.

Li Yang, chairman of the Na­tional In­sti­tu­tion for Fi­nance and De­vel­op­ment, said that the cen­tral gov­ern­ment is well aware of the pos­si­ble risks of mount­ing debt— es­pe­cially in the non­fi­nan­cial cor­po­rate sec­tor — and will act to tackle the debt is­sue in a timely man­ner.

“The group to be es­tab­lished will play a key role in re­solv­ing the debt prob­lems that no sin­gle ma­jor reg­u­la­tor or fi­nan­cial gover­nor could tackle in the pub­lic, cor­po­rate and bank­ing sec­tors,” he said.

Li echoed the words of David Lip­ton, first deputy man­ag­ing direc­tor of the In­ter­na­tional Mone­tary Fund, who warned on Tues­day of the debt prob­lems. Lip­ton sug­gested that a well­staffed group is needed to specif­i­cally re­solve the mount­ing debt and to ad­dress the as­so­ci­ated bank­ing con­se­quences.

China has re­lied on debt­fu­eled stim­u­lus for years, lead­ing to rapid eco­nomic growth, and debt prob­lems did not be­come ap­par­ent un­til eco­nomic pres­sure ap­peared, Li said.

Data from the in­sti­tu­tion show that China’s to­tal debt was 168.5 tril­lion yuan ($25.6 tril­lion) at the end of 2015, which is equiv­a­lent to 249 per­cent of GDP. The debt-to-GDP ra­tio of the cor­po­rate sec­tor was es­ti­mated at 131 per­cent.

Al­though that is a high level of debt, it is not as in­tim­i­dat­ing as some in­vestors had thought, Li said.

“The debt level re­mains con­trol­lable, and the pos­si­bil­ity of a debt cri­sis in China is rather small,” he said.

“China’s sav­ings rate is close to 50 per­cent,” said Li. The debt prob­lem in­China is mostly in­ter­nal and isn’t likely to turn into a cri­sis, with enough for­eign ex­change re­serve, he added.

“The gov­ern­ment still has size­able as­sets on hand to deal with debt prob­lems,” Li said.

Ad­di­tion­ally, China has in­tro­duced meth­ods to deal with debt prob­lems, he said.

In re­sponse to con­cern over the limited ef­fect of debt-for-eq­uity swaps that are sup­posed to keep bad debt from pil­ing up, Li said this ap­proach needs to be pro­pelled based on mar­ket prin­ci­ples and ac­cord­ing to law, or dis­ar­ray will en­sue.

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