China may ‘slowly ease efforts to curb debt this year’
Government will enforce milder measures to trim debt pile as growth in nation’s economy decelerates, US investment firm predicts
China’s campaign to curb financial leverage, which pushed bond yields to three-year highs in 2017, may become less intense this year as growth in the economy decelerates, according to the US-based investment firm Pacific Investment Management.
Roland Mieth, emerging market portfolio manager at Pimco, said China achieved good progress in deleveraging last year. A Bloomberg survey of economists last month showed expectations for more stabilisation, with total debt likely to be 260 per cent of gross domestic product at the end of 2018, the same as a year earlier.
Milder steps to trim excess debt could help lower financing costs, potentially giving weaker borrowers some breathing room after investors said they expect more such firms to default this year. Mieth’s comments echo other remarks from Pimco in October that authorities would refrain from broad-based deleveraging.
The market has started pricing in such expectations. China’s government and corporate bonds returned 1.9 per cent in the first three months of 2018, the best quarterly performance in two years.
“The new element this year is that growth momentum is probably going to slow down” with the economy probably expanding at about 6.4 per cent from 6.9 per cent last year, said Mieth in Singapore. “The pace of financial deleveraging may be more gradual and less intense than last year.”