China's debt risk controllable: analysts
Global Times
By Zhang Hongpei Source:Global Times Published: 2019/12/17 21:23:40
Figures should be viewed in context of real economy's growth
China's debt issue - specifically its debt-to-GDP ratio - is drawing more attention amid the country's economic downward pressure and the prolonged China-US trade war, but given China's growing GDP and the capacity to repay the debts, potential debt risks are totally controllable, industry analysts told the Global Times on Tuesday.
"There is no need to worry that a debt crisis might happen in China, which has a middle level of debt in global terms, slightly under the average of developed countries," Xu Gao, chief economist of BOC International (China) Co, told a forum over the weekend.
Despite a drop in the savings rate in recent years to around 45 percent, China's savings rate is still twice the percentage of other countries or regions, meaning the country has sufficient capacity to carry its debt, Xu said.
A recent report by the National Institution for Finance and Development, a government-backed financial think tank, showed that China's macro leverage ratio - the percentage of debt in the government, household and corporate sectors to total GDP - was up 7.4 percentage points on a cumulative basis in the first three quarters of 2019.
In the third quarter, the real economy sector maintains a steady leverage ratio up to 251.1 percent compared with 249.5 percent by the end of the second quarter.
For the whole year, China's macro leverage ratio is projected to grow by 8 to 10 percentage points, which would be 2 to 4 percentage points lower than the spike that took place from 2008 to 2016 on average, the agency estimated.
Such an increase in the leverage ratio would be moderate, given the current priority to stabilize economic growth. The projected rise is much smaller than the increase of 31 percentage points in 2009, it said.
China's total debt rose to 303 percent of GDP in the first quarter of 2019, from 297 percent a year earlier, according to data released by the Institute of International Finance in July.
The high ratio has led to some hype in the markets over whether the debt will lead to a crisis and affect economic growth. Analysts said the issue should be dealt with in special areas as the property industry and local government debt instead of overall debt are playing the major role.
"It is actually a structural issue. The real economy and manufacturing enterprises have been on a relatively sound track. We can see it from the government's latest census of the industrial and services sectors that the second-tier industrial sector has a debt-to-asset ratio of 56 percent, which is controllable," said Tian Yun, a vice director of the Beijing Economic Operation Association.
However, total debt owed by property companies reached 88.95 trillion yuan ($12.7 trillion) as of the end of 2018, according to census statistics released in November, almost equivalent to China's GDP of 90 trillion yuan.
The just-concluded Central Economic Work Conference called for a long-term mechanism to maintain the sound development of the real estate market and adhere to the principle that "housing is for living in, not speculation."
"Another contributor is local government debt, which poses challenges to deeper reforms," Tian told the Global Times on Tuesday.
In November, China brought forward 1 trillion yuan of the 2020 quota for local government special-purpose bonds to this year to stimulate further economic growth by raising investment in infrastructure projects.
China has been slowing the scale and growth of its debt by deleveraging since 2017 and the government's moves have been bearing fruit.
"We should realize that it is not a 'one-size fits all' issue, so a large-scale deleveraging might sink some private companies, which need to continue their operations," Tian noted.
Xu told the Global Times on Tuesday that the debt issue should be tackled along with stabilizing GDP growth.
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