China’s total debt rises to over 300 per cent of GDP as Beijing loosens borrowing curbs to boost growth
- The figure has risen to over US$40 trillion, some 15 per cent of overall global debt, according to data released by the Institute of International Finance
- China has eased its deleveraging campaign in a bid to aid the slowing economy amid the trade war with the United States
China's total debt burden rose strongly in the first quarter of 2019 as Beijing allowed more loans and local government bond issuance to help shore up the slowing economy, according to estimates by the Institute of International Finance.
The figure stood at nearly 304 per cent of its gross domestic product (GDP) in the first three months of the year, up from 297 per cent a year earlier, the US-based trade association said.
The Chinese government has sought to rein in corporate debt by restricting borrowing through informal channels, known as shadow banking. While the restrictions have prompted a reduction in corporate debt in non-financial sectors, net borrowing in other sectors has surged, bringing total debt to over US$40 trillion – some 15 per cent of overall global debt, according to data released by the Institute of International Finance.
Total debt in the United States has risen by US$2.9 trillion since the first quarter of 2018, bringing the overall debt mountain to an all-time high of over US$69 trillion in the first quarter of 2019.
Household debt remains one of the fastest growing sectors, rising to 54 per cent of GDP in the first quarter from 49.7 per cent in the first quarter of 2018, the Institute of International Finance said.
Government debt rose to 51 per cent in the first quarter from 47.4 per cent a year earlier, while financial sector debt rose to 43 per cent from 41.3 per cent.
The non-financial corporate sector was the only group to show a slowdown in borrowing, with the debt-to-GDP ratio falling to 155.6 per cent from 158.3 per cent a year earlier.
There has been a resurgence of borrowing from banks and by local governments since the start of this year, speeding up and boosting loan growth and bond issuance.
Total new loans in the first six months of 2019 reached 9.67 trillion yuan (US$1.4 billion), a record high for Chinese banks, up from 9.03 trillion yuan in the same period a year earlier, data from the central bank show.
To boost infrastructure spending by the local governments, which have seen their revenues plunge as a result of tax cuts and sluggish growth, the central government has permitted proceeds from local government special purpose bonds to be used as initial capital for certain significant revenue-generating infrastructure projects.
The National Development and Reform Commission approved 94 fixed-asset investment projects during the first half of 2019, worth a total of 471.5 billion yuan (US$69 billion), spokeswoman Meng Wei said on Tuesday. The amount of investment was almost double the 260.3 billion yuan of the 102 projects approved during the same period last year.
Analysts at rating agency Moody’s expect China’s effort to rein in shadow banking to moderate further in the coming months as Beijing increases credit stimulus in the face of the increasing impact of the trade war.
In addition, smaller regional banks are facing increasing difficulty in obtaining funding, prompting regulators to be more cautious with their risk reduction campaign, according to Moody’s.
Chinese Premier Li Keqiang said on Tuesday that the downward pressure on China is increasing due to the global economic growth, slowing trade and investment, rising protectionism as well as other headwinds facing the domestic economy, according to reports by state media.
China will continue to implement a proactive fiscal policy, a prudent monetary policy and an employment-first policy, while making good use of counter-cyclical tools, carrying out advanced adjustments and fine-tuning when necessary, according to Li.