image

China Economy

China says efforts to rein in corporate debt working, but still far to go

PUBLISHED : Wednesday, 09 August, 2017, 1:55pm
UPDATED : Wednesday, 09 August, 2017, 10:10pm

China will push on with achieving better results in getting its corporate sector to cut excessive borrowing even though it has made initial progress in lowering debt levels as firms’ are still over extended, the state planner said on Wednesday.

Policymakers have been trying to rein in debt risks and property bubbles amid fears that such problems could derail the world’s second-largest economy if not handled properly.

“We have seen initial results in lowering corporate leverage and debt risks have been effectively controlled,” the National Development and Reform Commission said on its website.

How China’s billion savers embarked on a household debt binge

But excessively high leverage ratios of Chinese companies have not been fundamentally reversed, with non-financial Chinese firms’ leverage ratios still the highest among the world’s top economies, it said.

“Therefore, we must firmly adhere to the direction of deleveraging, effectively overcome difficulties and achieve greater results in reducing corporate leverage levels,” it said.

The government will focus on lower debt levels at state-owned enterprises by improving their governance structure, pushing mixed ownership reform, the commission said.

The state planner did not provide its own data on corporate debt levels, but cited figures from the Bank for International Settlements that showed China’s debt-to-GDP ratio edged up to 257 per cent at the end of 2016 from 244.9 per cent a year ago.

On a quarter-on-quarter basis, the rate of rises in China’s debt levels slowed to 1.6 percentage points in the fourth quarter of 2016 from 1.9 percentage points in the third quarter.

China will use market-based and legal means including the debt-for-equity scheme to address “zombie companies” by removing various obstacles and promote “euthanasia” of such firms, the commission said.

China’s big leverage crackdown gets a big shrug from markets

The total contract value of China corporate debt-to-equity swaps so far has exceeded 1 trillion yuan (US$149.35 billion), it added.

China’s corporate debt was equivalent to 166.3 per cent of GDP at the end of 2016, unchanged from September, the Bank of International Settlements said on its website.