Level of debt remains ‘ under control’

Nonperforming loan rate forecast to stay below 2 percent

Experts say China is not at risk of a debt crisis, because the country’s leverage ratio is not very high compared with developed economies and its debt is supported by domestic deposits.

The comment came after The Telegraph reported on Saturday that Harvard economics professor Ken Rogoff asserted a hard landing for China is inevitable because of the country’s heavy debt and reliance on investment- driven development.

China’s leverage rate is not very high, considering that it has not reached the average level of developed countries, said Xu Gao, chief economist at China Everbright Securities Asset Management.

The leverage ratio is the percentage of a country’s total credit against its GDP.

China’s total social financing, a broad measure of credit in the economy, was 213 percent of GDP in 2016 and approached 217 percent of GDP in the first half of this year, according to data from Moody’s Investors Service in July.

“Moreover, the country’s debts are supported by large amounts of deposits rather than loans from other coun- tries, which means that the risk from debt is under control,” Xu told the Global Times on Sunday.

Also, debt levels vary among government, corporate and household borrowers, with corporate leverage ratios higher than that of other borrowers, Xu said, noting that authorities should cut capital flows into hopeless companies burdened with heavy debts, while supporting promising companies through measures like debt- toequity swaps to optimize debt structure and lower risks.

Non- financial State- owned enterprise ( SOE) liabilities were 87 trillion yuan ($ 12.9 trillion) at the end of 2016, representing 117 percent of the country’s GDP, according to Moody’s.

At the fifth National Financial Work Conference that concluded on July 15, top policymakers emphasized financial security and guarding against systemic financial risks. They established a Financial Stability and Development Committee to oversee risk management and coordinate the country’s financial reform, the Xinhua News Agency reported.

With rising scrutiny from the highest levels of China’s government on financial stability in general and SOE leverage in particular, the pace of debt growth in the overall economy and among SOEs is likely to slow down, according to a report Moody’s sent to the Global Times on July 21.

The domestic banking sector’s operations remained sound in 2016, with the rising trend of nonperforming loans ( NPLs) slowing, news site cnr. cn reported, citing a report released by the China Banking Association on Friday. It said the domestic banking sector will remain stable this year.

Industry insiders forecast that the overall NPL rate of domestic banks will stay below 2 percent this year, which is a low level, the report said.