Policy changes driving China’s debt problem
Recent government measures may have helped growth but are also increasing country’s debt burden
Policymakers are adding more fuel to China’s rising debt woes, said a recent report from global ratings agency Fitch Ratings.
The report comes at a time when looser monetary conditions seemed to have helped stabilise the domestic Chinese economy, with official figures putting GDP growth for the second half of this year 6.7 per cent, though at the risk of further exacerbating Chinese lenders problems with non performing loans (NPLs).
Figures from the Chinese Banking Regulatory Commission said that NPLs in China’s commercial banking sector rose to 1.81 per cent of total lending at the end of the second quarter, the highest since the global financial crisis in 2009. Most analysts believe that the real figure is significantly higher than this, however.
Jack Yuan and Jonathan Cornish, who jointly authored the Fitch report, said the moves by the Chinese policymakers are an indication that the central government is keen to reduce debt servicing costs and to make credit more accessible for borrowers.
“These measures include lowering interest rates and the bank reserve requirement ratios, loosening prudential controls, [giving] instructions to roll over loans for highly leveraged borrowers, and bigger roles for the policy lenders,” they said.
In June , new loans in China rose to 1.4 trillion yuan (HK$1.63 trillion) from 940 billion yuan in May, according to data released by the People’s Bank of China, while growth of M2 – a broad measure of money supply – remained flat at 11.8 per cent in June, the same as in May.