S&P: China credit growth still too fast

BEIJING: China’s attempts to reduce risks from its rapid build-up in debt are not working as quickly as expected and credit growth is still too fast, said S&P Global Ratings yesterday, a day after it downgraded the country’s sovereign credit rating.

While S&P warned months ago that a cut may be on the cards, it said it decided to make the call after concluding that China’s “de-risking” drive that started early this year was having less of an impact on credit growth than initially expected.

“Despite the fact that the government has shown greater resolve to implement the deleveraging policy, we continue to see overall credit in the corporate sector to stay at a nine per cent point,” said Kim Eng Tan, an S&P senior director of sovereign ratings, in a conference call to discuss the one-notch downgrade to “A+” from “AA-”.

“We’ve now come to the conclusion that while we do expect some deleveraging in the next few years, this deleveraging is likely to be much more gradual than we thought could have been the case early this year.”

Tan said broader lending by all financial institutions excluding equity fund-raising, started to rise after growing by a relatively steady 12-13 per cent in the last few years.

“That was the key metric that we looked at and we believe while this growth of aggregate debt financing could come down somewhat over the next few years, it’s not likely to come down very sharply.”

China’s banks extended a record 12.65 trillion yuan (RM7.73 trillion) loans last year, roughly the size of Italy’s economy. TSF was a record 17.8 trillion yuan. Reuters