CORPORATE DEBT LEVELS ‘TOO HIGH’
PBoC says it will take time to make them more manageable
China’s corporate debt levels are too high but it will take time to bring them down to more manageable levels, said the head of the central bank yesterday, underlining an uphill battle to put the world’s second-largest economy on a more sustainable footing.
Chinese leaders have pledged to contain debt and housing risks this year after years of creditfuelled expansion. But many analysts remain doubtful over the government’s commitment to follow through on potentially painful reforms, especially if growth falters.
“Non-financial corporate leverage is too high,” said People’s Bank of China governor Zhou Xiaochuan on the sidelines of the annual parliament session.
Efforts would be made to contain debt levels, including restructuring of firms with heavy debt burdens, alongside a push to reduce excess industrial capacity, he said.
Banks would withdraw support for financially unviable firms, he added, repeating pledges by other officials last year to drive such “zombie” firms out of the market.
“I personally think this process is relatively medium-term. It won’t have very obvious results in the short-term because the existing stock (of debt) is very large,” he said.
Measures by local governments to cool rising house prices would slow mortgage growth to some degree, but housing loans would continue to grow at a relatively rapid pace, said Zhou.
China’s corporate debt has soared to 169 per cent of gross domestic product (GDP), according to figures from the Bank for International Settlements.
China needed to first stabilise its overall debt levels before gradually reducing them, said deputy central bank governor Yi Gang at the same briefing. China’s debt-to-GDP ratio rose to 277 per cent at the end of last year from 254 per cent the previous year.
Turning to the yuan currency, Zhou said he expected it to be basically stable this year, while conceding that some fluctuations were normal.