BEIJING: China’s corporate debt levels are too high but it will take time to bring them down to more manageable levels, the head of the central bank said on Friday, underlining an uphill battle to put the world’s second-largest economy on a more sustainable footing. Chinese leaders have pledged to contain debt and housing risks in 2017 after years of credit-fueled expansion, which has been propelled by the need to meet official economic growth targets. But many analysts remain doubtful over the government’s commitment to follow through on potentially painful reforms, especially if growth falters. “Non-financial corporate leverage is too high,” People’s Bank of China Governor Zhou Xiaochuan told reporters at a news conference on the sidelines of the annual parliament session.
Efforts will be made to contain debt levels, including restructuring of firms with heavy debt burdens, alongside a push to reduce excess industrial capacity, he said. Banks will withdraw support for financially unviable firms, he added, repeating pledges by other officials last year to drive such “zombie” firms out of the market. “I personally think this process is relatively medium-term. It won’t have very obvious results in the short-term because the existing stock (of debt) is very large,” he said. Measures by local governments to cool rising house prices will slow mortgage growth to some degree, but housing loans will continue to grow at a relatively rapid pace, Zhou said.
Zhou, 69, took control of the PBOC in 2002 and is the architect of China’s financial reforms. Throughout the news conference, the jocular governor smiled and amicably engaging with the deputy governors beside him as well as the journalists. Unlike many government officials, Zhou did not refer to prepared material when responding to questions. China’s corporate debt has soared to 169 percent of gross domestic product (GDP), according to figures from the Bank for International Settlements. China needs to first stabilize its overall debt levels before gradually reducing them, deputy central bank governor Yi Gang said at the same briefing. China’s debt-to-GDP ratio rose to 277 percent at the end of 2016 from 254 percent the previous year, with an increasing share of new credit being used to pay debt servicing costs, UBS analysts said in a note. China’s credit growth has been “very fast” by global standards, and without a comprehensive strategy to tackle the overhang, there is a growing risk it will have a banking crisis or sharply slower growth or both, the International Monetary Fund warned late last year.
