China’s debt-reduction campaign a 2021 priority as coronavirus drives surge in borrowing
- Beijing’s latest work report says deleveraging is one of ‘five major tasks’ for the government in 2021
- Since the beginning of the coronavirus pandemic, China’s debt burden has grown roughly 30 per cent
China is set to resume its deleveraging campaign this year, but at a modest pace, as it seeks to balance financial risks with putting excessive downward pressure on an economy still recovering from the coronavirus shock of a year ago.
Beijing’s renewed emphasis on debt reduction – aimed at reducing excess housing inventory and cutting overcapacity in certain sectors – comes amid official warnings about the impact of the massive US coronavirus relief effort on America’s already high debt burden. It also follows concerns about domestic and foreign risks emanating from China’s debt position.
After the global financial crisis in 2008, the United States and China opened the financial floodgates to support their economies, causing debt levels to surge in both countries. In response to the coronavirus pandemic, the US Federal Reserve and the People’s Bank of China once again loosened monetary policies to drive down borrowing costs, causing the debt burden of both nations to hit record highs.
Guo Shuqing, chairman of China Banking Regulatory Commission, warned last week of the pressures from high leverage in the financial system, because a considerable number of Chinese companies were likely to face bankruptcy and liquidation after the pandemic.
With their operations disrupted, many will have difficulty paying off debt, leading to an inevitable rise in non-performing bank loans, Guo said.