Mainland corporate borrowing soars to service debt
Mainland faces growth threat as loans surge to US$1.7 trillion from US$604 billion in 2007
Mainland companies are spending more than ever to service debt after their borrowing almost tripled over five years, prompting strategists to warn of rising default risk and a threat to economic growth.
Financing costs, including interest, on all forms of debt climbed to the highest level as a percentage of gross domestic product last year, according to Sanford C. Bernstein.
Bernstein says that means less cash for investment to fuel the world's second-largest economy, while Royal Bank of Scotland says the threat of defaults will hold back interest-rate liberalisation. The average 10-year yield for top-rated company bonds is near a 13-month high at 5.27 per cent, compared with the 2.6 per cent yield in a Bank of America Merrill Lynch global corporate index.
"There's just a lot more debt in China today than there was really ever in the past, relative to nominal GDP," said Mike Werner, a Hong Kong-based analyst at Bernstein. "More and more of the country's resources have to be put to just financing outstanding debt, and that itself is a headwind for economic growth."
While the nation exited a seven-quarter slowdown in October-December as the government eased monetary policy, incoming premier Li Keqiang may need to confront the fading effects of government support, a likely pickup in inflation and rising risks from shadow banking.