Advertisement
The View | China’s deleveraging campaign takes a toll on the private sector, especially the battered property market
- Nicholas Spiro says an upswing in the Chinese equities market can’t disguise the beating its private firms have taken due to government efforts to rein in debt
- Furthermore, these worrying signs appear unlikely to ease as long as central banks dial back their stimulus measures
Reading Time:3 minutes
Why you can trust SCMP
China’s battered equity market has not done too badly since hitting a four-year low in mid-October. The Shenzen Composite Index, which is dominated by private enterprises, is up nearly 6.5 per cent since October 18 – compared with a 0.5 per cent rise for the benchmark S&P 500 index – partly because of hopes that recent measures to support private firms are a prelude to more forceful action to shore up China’s economy and capital markets.
New initiatives to help the private sector, which include steps to facilitate bond sales and instructions to large banks to boost their lending to private companies, have contributed to lower volatility in Chinese stocks. According to data from Bloomberg, average intraday swings last week were the lowest this quarter. The yuan has also been more stable of late, with data published last Wednesday revealing that Beijing spent US$32 billion of its foreign reserves last month to defend the currency.
Yet, just a cursory glance at China’s deeply indebted corporate sector shows the severity of the funding squeeze faced by private firms, which have borne the brunt of the government’s two-year-old deleveraging campaign.
Advertisement
While Chinese government bonds have performed well this year, benefiting from measures to ease monetary policy and new rules to attract foreign investment, the corporate debt market has taken a beating.
New data from Bloomberg published last Thursday shows that 15 Chinese dollar-denominated bonds included in a Bloomberg Barclays index of emerging market corporate debt have spreads in excess of 1,000 basis points (the level at which debt is typically considered distressed), a higher number than all the other developing economies included in the gauge combined.
Advertisement
Select Voice
Choose your listening speed
Get through articles 2x faster
1.25x
250 WPM
Slow
Average
Fast
1.25x