The Chinese economy’s debt ratio is likely to slow this year, according to a top official newspaper, amid growing concerns over the sustainability of rising levels of local government borrowing.
The macro leverage ratio – or total debt as a percentage of gross domestic product (GDP) – rose to 273.2 per cent as of the end of 2022 from 262.8 per cent a year earlier, according to a commentary carried in the Economic Daily on Tuesday. The article cited a report published last week by a government-backed think tank. The newspaper is affiliated with the State Council, China’s cabinet.
The ratio could go up further this year, albeit at a slower pace, the article said. The think tank – the National Institution for Finance and Development (NIFD) – forecast the ratio to rise by 5.5 percentage points this year, or about half of last year’s increase, if economic growth reaches 5.5 per cent.
The consensus forecast for GDP growth this year is 5.2 per cent, according to a Bloomberg poll of economists.
The commentary came as concerns over local government finances and their ballooning debt are mounting.
Income accrued by local governments was slashed last year during zero-Covid and the ongoing property downturn, while their spending continued to rise.
Economists, meanwhile, have been calling on the central government to borrow more to aid the country’s economic recovery this year and lessen the debt burden on local authorities.
In an attempt to assuage fears, the Economic Daily said in the article that China’s debt ratio is basically stable, and that financial risks are “generally under control”.
That should create room for banks to further enhance support for the economy, it added.
While the debt ratio has risen since the coronavirus pandemic began, its uptick was still markedly lower than in other major economies, according to the article, which said that means China used a relatively small amount of debt to drive the economy’s rebound.
The increase in China’s debt-to-GDP ratio last year was mainly led by slowing economic growth, according to the NIFD report cited in the article.
The ratio for the government sector rose faster than expected, while corporate debt expanded as bank loans to companies surged.
However, the ratio for the household sector was unchanged due to the property slump and as income was hit by virus outbreaks and controls, according to the NIFD.
Chinese authorities embarked on a deleveraging campaign in 2016 to rein in the rapid build-up of debt in the economy as financial risks increased.
After reaping some initial success, the government halted the effort in 2020 to stimulate the pandemic-stricken economy.
The economy’s debt ratio surged by 24 percentage points in 2020 before it fell 8 percentage points the next year, when economic growth rebounded, according to NIFD data.
Source : SCMP
