China's massive debt pile to stabilise, economists predict
China’s massive debt pile may finally stabilise this year as President Xi Jinping prioritises control of financial risks, according to economists.
Total debt will be 260 per cent of gross domestic product at the end of 2018, the same as it was 12 months earlier, according to the median estimates of 21 economists surveyed by Bloomberg in March. In nominal terms, that would mean the growth in debt is slowing to roughly the same pace as the economy.
China is one of the countries most at risk of facing a banking crisis, the Bank for International Settlements warned recently, and Xi’s newly appointed top economic officials aim to prevent such an outcome. Stricter regulations, curbs on lending between financial institutions and a gradual increase in borrowing costs over the past year have all contributed to the deceleration of credit growth and that campaign has now expanded beyond the financial sector.
“The deleveraging campaign will be comprehensive this year – local governments, state-owned firms, households. There is no escape,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia in Hong Kong. Shen projects that the debt ratio peaked last year and will decline because of the government’s actions and robust corporate earnings.
While China has not published any official data on the size of its outstanding debt, the analysts surveyed estimated it at between 200 per cent and 283 per cent of GDP at the end of last year. Bloomberg Economics estimated it at 266 per cent.
