China vows to contain high debt levels
IMF says the country’s credit growth was ‘very fast’ by global standards
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.