China debt: Beijing urged to use ‘window of opportunity’ to tackle leverage following coronavirus recovery
- Following its strong recovery from the pandemic, China has an opportunity to build a more ‘sustainable debt model’, policy advisers in Beijing say
- Authorities should consider removing implicit government guarantees for failing financial institutions and special treatment of state-owned enterprises
China’s rapid economic recovery from the coronavirus pandemic has afforded it a brief window of opportunity to tackle its sky-high debt, experts say, but Beijing must be bold and take steps to abandon its investment-driven growth model.
Strong growth this year will allow China to whittle down its debt pile, but efforts to maintain strong growth in 2022 and beyond to help meet the government‘s goal of doubling the size of the economy by 2035 will create pressure for a renewed rise in indebtedness.
The world’s second largest economy is this year expected to shave 3 percentage points off its macro leverage ratio, usually measured as the proportion of debt to gross domestic product (GDP), according to the National Institution for Finance and Development (NIFD).
The NIFD research, led by Zhang Xiaojing and Liu Lei, estimated the ratio fell by 2.1 percentage points to 268 per cent in the first quarter. It forecast the figure to drop to 266 per cent by the end of June, before rebounding slightly in the second half.
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The People’s Bank of China (PBOC) estimated the national leverage ratio – one of the most closely scrutinised indicators in Beijing – grew by 23.5 percentage points last year to 279.4 per cent.