Can China reduce debt and maintain growth, or is it mission impossible?
Releasing funds in response to economic growth headwinds could damage country’s financial situation in long term, analyst says
China is facing a mission impossible in trying to reduce its debt mountain while maintaining strong economic growth and a stable currency, analysts said.
The People’s Bank of China said on Sunday it would release US$100 billion into the banking system by allowing lenders to reduce their reserve requirements. The move is designed to support weak links in the economy and provide a cushion against any fallout from a possible trade war with the United States, but the “targeted” operation will not interrupt the government’s main aim to reduce debt levels, it said.
Economists, however, said it will not be easy to cut debt – one of Chinese President Xi Jinping’s priorities – without hurting growth, especially with US President Donald Trump threatening massive tariffs on Chinese products.
“It is impossible to deleverage painlessly,” said Hong Hao, chief strategist with Bocom International, the brokerage arm of Bank of Communications, China’s fifth-biggest lender.
China’s central bank had to make a choice, he said. Its move towards easing in response to economic growth headwinds could come at the cost of worsening the country’s financial situation in the long term.
