China vows to con­tain high debt lev­els

IMF says the coun­try’s credit growth was ‘very fast’ by global stan­dards

The Star Early Edition - - INTERNATIONAL - Kevin Yao and Elias Glenn

CHINA vowed yes­ter­day to con­tain high com­pany debt lev­els and fur­ther cut ex­cess coal and steel ca­pac­ity, as Bei­jing at­tempted to main­tain solid and more bal­anced eco­nomic growth while avoid­ing desta­bil­is­ing asset bub­bles.

The coun­try prob­a­bly grew about 6.7 per­cent last year – roughly in the mid­dle of the gov­ern­ment’s tar­get range – but it faced in­creas­ing un­cer­tain­ties this year, the head of the coun­try’s state plan­ning agency told a news brief­ing.

Global in­vestors are buzzing over whether China’s lead­ers will be will­ing to ac­cept more mod­est growth this year, amid wor­ries about the risks from years of debt-fu­elled stim­u­lus.

China’s credit growth was “very fast” by global stan­dards, the In­ter­na­tional Mon­e­tary Fund (IMF) said last Oc­to­ber.

“Although the do­mes­tic econ­omy is sta­ble and im­prov­ing, it still faces con­tra­dic­tions and prob­lems,” said Xu Shaoshi, the top of­fi­cial at the Na­tional Devel­op­ment and Re­form Com­mis­sion (NDRC). “We have the con­fi­dence, con­di­tions and abil­ity to en­sure the econ­omy op­er­ates within a rea­son­able range.”

Xu said China would not al­low debt of non-fi­nan­cial firms to rise be­yond cur­rent lev­els. China’s cor­po­rate debt has soared to 169 per­cent of gross do­mes­tic prod­uct (GDP).

China’s lead­ers were likely to ac­cept growth this year of about 6.5 per­cent, said pol­icy in­sid­ers. That would give the gov­ern­ment more room in the­ory to fo­cus on tack­ling the na­tion’s debt pile, and on tamp­ing down spec­u­la­tion that was seen last year in the hous­ing, com­modi­ties and debt mar­kets.

Af­ter a rough start last year, China’s econ­omy per­formed bet­ter than many econ­o­mists had ex­pected as higher gov­ern­ment in­fras­truc­ture spend­ing, a hous­ing rally and record lend­ing by state banks fu­elled a con­struc­tion boom.

Pro­ducer prices saw a stun­ning turn­around, emerg­ing last Septem­ber from nearly five years of de­fla­tion. That helped put the ailing man­u­fac­tur­ing sec­tor on a stead­ier foot­ing.

Data yes­ter­day showed pro­ducer prices con­tin­ued to rise as last year drew to a close, with pro­ducer in­fla­tion surg­ing 5.5 per­cent in De­cem­ber year on year, the fastest in more than five years.

But some an­a­lysts worry the strong gains may also be fu­elled by grow­ing spec­u­la­tion in com­modi­ties fu­tures mar­kets, adding to the broader risk of bub­bles in China’s econ­omy even as lead­ers at­tempt to con­trol ex­plo­sive debt growth.

“I don’t think there’s an in­fla­tion is­sue in China, it’s an asset bub­ble,” said Zhou Hao, Com­merzbank’s se­nior emerg­ing mar­ket economist.

While the NDRC’s Xu said China would put more pres­sure on coal and steel firms to re­duce over­ca­pac­ity this year, an­a­lysts at ANZ pre­dicted higher prices and fat­ter prof­its might thwart those ef­forts.

“Pro­duc­ers are tempted to fire their en­gines again in the face of ris­ing prices,” said ANZ econ­o­mists David Qu and Ray­mond Ye­ung in a note.

For the first time in nearly five years, econ­o­mists at HSBC raised their fore­cast for global growth and in­fla­tion, en­cour­aged by ro­bust man­u­fac­tur­ing ac­tiv­ity, a re­silient China and the fis­cal boost ex­pected to come in the US un­der in­com­ing Pres­i­dent Don­ald Trump.

Com­merzbank’s Zhou said a bub­ble in com­modi­ties could com­pli­cate pol­icy de­ci­sions if eco­nomic growth slowed and some eas­ing of mon­e­tary con­di­tions was needed.

But pol­icy in­sid­ers ex­pect a tilt to­wards more con­ser­va­tive mon­e­tary pol­icy this year.

The NDRC’s Xu said China would push for­ward its debt-toe­quity swop plan this year as it looked to cut the debt bur­den on com­pa­nies.

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