China’s central bank governor has added to the chorus of high-level alarm in Beijing over the country’s still fast-rising corporate debt burden.
Zhou Xiaochuan of the People’s Bank of China told the China Development Forum that the ratio of credit to national income was out of hand. “Lending and other debt as a share of GDP, especially corporate lending and other debt as a share of GDP, is on the high side,” he said.
Mr Zhou added that excessive corporate leverage created the potential for macroeconomic risks.
Estimates put the debt to GDP ratio of Chinese corporates at around 180 per cent of GDP. Total debt to GDP – which includes government and household debt, is thought to be around 250 per cent, which is extremely high by the standards of other emerging market economies.
The central bank boss’s comments follow warnings of other senior Chinese officials and also echo the long-standing concerns of organisations such as the International Monetary Fund and the Bank for International Settlements about the credit-intensity of China’s growth since the global financial crisis.
Since 2008, the debts of the country’s non-financial sector have exploded by around 90 percentage points of GDP. About 30 per cent of the debt is owed by real estate companies, construction firms and engineering businesses. Around a fifth is owed by oil, gas, metals and mining firms.
The broadest measure of China’s credit growth – known as “total social financing” – grew by RMB780bn in February, one of the lowest monthly net totals since 2010. But this followed a massive RMB3.42 trillion surge in January, which suggests the Chinese authorities are still relying on liberal bank lending to keep the wheels of the domestic economy turning.
According to estimates from Goldman Sachs, around 70 per cent of the increase in credit in the past eight years has come from big state-owned and controlled Chinese banks.
Despite Mr Zhou’s words of concern, the People’s Bank has been encouraging lending to offset the country’s growth shortfall. It has cut interest rates six times since November 2014. The reserve ratio has also been reduced several times.
Mr Zhou said high corporate debt could be addressed by encouraging the development of deeper capital markets to provide more equity funding.
Zhou Xiaochuan, China’s central bank governor, said lending as a share of GDP is too high
