China’s corporate debt levels are ‘ too high’

BEIJING: China’s corporate debt levels are excessively high, the head of its central bank said yesterday, as policymakers in the world’s second-largest economy grow increasingly concerned about the risks from a rapid buildup in debt and an overheating housing market.

Banks cannot support firms with high leverage, People’s Bank of China Governor Zhou Xiaochuan told reporters at a news conference on the sidelines of the annual parliament session.

But Zhou stressed that China’s efforts to cut debt levels will take time, describing it as a mediumterm process.

Measures by local governments to cool rising house prices will cool mortgage demand to some degree, but housing loans will continue to grow at a relatively rapid pace, Zhou said.

China needs to first stabilise its overall debt levels and slow down the pace at which debt is rising, deputy central bank governor Yi Gang said at the same briefing.

The comments echoed those from top officials earlier in the parliamentary session about the need to contain credit risks in China after years of debt-fuelled expansion, which has been propelled by the need to meet official economic growth targets.

But, as with earlier pronouncements, there were few specifics for tackling the problems, and many veteran China watchers suspect authorities will quickly backpedal on reforms if there are signs that economic growth is faltering.

China’s credit growth has been ‘ very fast’ by global standards, and without a comprehensive strategy to tackle the overhang, there is a growing risk it will have a banking crisis or sharply slower growth or both, the International Monetary Fund warned late last year.

Corporate debt has soared to 169 per cent of gross domestic product ( GDP), according to figures from the Bank for International Settlements.

Even as policymakers warn of debt risks, heavy stimulus is still evident in record lending from mostly state- owned banks and increased government spending on infrastructure projects.

China’s banks extended a record 12.65 trillion yuan ( US$ 1.83 trillion) of new loans in 2016.

Bank lending this January was the second highest on record and did not slow as much as expected in February.

China’s debt to GDP ratio rose to 277 per cent at the end of 2016 from 254 per cent the previous year, with an increasing share of new credit being used to pay debt servicing costs, UBS analysts said in a note.

In recent months, the PBOC has cautiously moved to a modest tightening bias in a bid to cool explosive growth in debt and discourage speculative activity, though it is treading cautiously to avoid hurting economic growth. — Reuters