A woman walks past the headquarters of the People’s Bank of China in Beijing, China.
Jason Lee | Reuters
BEIJING – Data for this year show signs that China is starting to reduce its debt.
A survey conducted in the first quarter by China Beige Book, published on Thursday, showed that state-owned enterprise loans fell to the lowest level in the study’s nearly 10-year history. Global lending has fallen to its lowest level in three years, while that of large firms has reached a five-year low, the report said.
Given ties to the state, government-linked companies are “the best signal” of the authorities’ policy intentions, said Shehzad Qazi, general manager of China Beige Book, Shehzad Qazi. The company conducts quarterly surveys of Chinese business.
Economists note that China’s relatively low GDP target of more than 6% this year gives policy makers the ability to address issues such as high debt levels without having to worry too much about growth. . Before the coronavirus pandemic last year, China tried to limit debt growth with mixed results.
While Qazi noted that more quarterly data will be needed to say whether China has returned to “debt” mode, there are other signs that authorities are trying to control the debt.
China’s debt-to-GDP ratio rose to 285% at the end of the third quarter of 2020, up from an average of 251% between 2016 and 2019, according to a report from Allianz on Monday, citing the subsidiary’s analysis his Euler Hermes.
Although this debt-to-GDP ratio has not fallen, it has stabilized, senior economist Francoise Huang said in a telephone interview on Tuesday. “Stabilization is already a good sign and probably one of the goals of the Chinese policy-makers’ debt reduction campaign.”
She pointed out that a national debt measure called aggregate financing has slowed its growth since October.
Year-over-year, year-on-year, aggregate financing for the real economy rose 44.39% in October, but has declined since then, according to Wind Information. The figure showed an increase of 16.19% in February.
Chinese regulators have warned in recent weeks about financial risks, especially in stocks and the real estate market. Premier Li Keqiang said earlier this month in an annual report on the economy that China has recovered enough from the coronavirus pandemic and that no related bonds are planned.
One concern about this withdrawal of support is that banks may not be as eager to lend to small, privately run businesses as they were during the pandemic, when Beijing specifically encouraged such lending. China’s large banks are state-owned and prefer to work with state-owned enterprises rather than riskier private companies. But the private sector is contributing to most jobs and growth in China.
“I think policymakers want private and especially (small and medium-sized enterprises) not to be worried about this reduction in leverage,” Huang said. “But I think in the end it can be something that concerns all kinds of companies.”
Bank loans for carbon targets
Moody’s expects loan growth to be “more moderate this year,” especially as there are new restrictions on lending in the real estate industry, said Nicholas Zhu, vice president and senior credit officer at Moody’s Investor Service.
He added that China’s focus on maximum carbon emissions in 2030 will generate more demand from companies to finance renewable energy projects. However, he said that banks will be more cautious about lending due to past experience with Chinese solar companies, many of which have gone bankrupt.