The View | Trade war or not, China’s pivot to the private sector and return to infrastructure spending are worth watching
- Christine Loh says having seen results from its crackdown on shadow banking, China is taking steps to address the private sector’s need for financing. Meanwhile, more funds are also expected to be allocated to infrastructure
China’s private sector is being given a long-awaited shot in the arm. The authorities have asked banks to allocate half of their new loans to private businesses by 2021. This addresses Chinese businesspeople’s long-standing gripe that they are unable to get financing from mainstream banks, as state-controlled commercial banks largely serve state-owned enterprises and local governments.
Regulators had to find aggressive ways to fix China’s runaway credit boom that began in 2008. They capped credit expansion as a percentage of GDP by stopping off-balance-sheet lending, which also affected the finances of SOEs and local governments.
The build-up of debt not only put public and private institutions at risk but also became a threat to China’s financial stability, making it necessary to rein in shadow lending. The Chinese leadership is now confident its deleveraging measures have worked and the country’s overall debt-to-GDP ratio, which has stabilised at around 250 per cent, is manageable.