Beijing ‘wants to deleverage, but not destabilise’
Nation ponders how to lower its debt mountain while being reluctant to give up debt-fuelled growth model
China is sending a confusing message that it wants to accelerate leverage reduction to tackle its debt mountain but is reluctant to give up its debt-fuelled growth model, economists warn.
Communist leaders have listed deleveraging as one of five key supply-side reform tasks, already releasing measures such as debt swaps, debt-to-equity and a neutral monetary policy with a tightening bias, but economic stabilisation seems certain to remain the top priority in this year of leadership reshuffles.
The world’s second-largest economy grew at a 26-year low rate of 6.7 per cent last year. After a strong economic performance at the start of this year, most financial institutions – from the International Monetary Fund to leading Chinese investment banks – have expressed optimism of obtaining the 2017 target of about 6.5 per cent growth with existing stabilisation measures.
“The stabilisation has been achieved by ‘releveraging’,” Fitch Ratings chief economist Brian Coulton said on the sidelines of the Boao Forum for Asia in Hainan on Friday. “There’s no deleveraging going on in China at the moment.”
The government’s leeway to maintain growth typically involves more lending to the state sector, which is the least productive and efficient in terms of the use of capital, Coulton said.