The Strategist

China will review the goal of combating debt risks

12/20/2017 - 13:26

China plans to soften its goal of debt reduction in the economic plan, which will be released later on Wednesday, reports The Wall Street Journal.

The revised plan will focus on curbing the growth of borrowings, according to WSJ's sources. This step contradicts the mission of the Chinese government to reduce the growing debt of the country.Recall that Chairman Xi Jinping made this goal the cornerstone of the country’s economic platform.

The goal could be reduced after the leaders of the Chinese Communist Party admit the fact that China's economy may be more dependent on credit growth than the government would like.

The level of debt in China in September rose at a maximum pace in four years, the agency Reuters reported. There is speculation that China's debt burden may be three times that of its economy.

China faces the need to support economic growth, while the US intends to hold the largest tax reform in 30 years. As part of the reform, the corporate tax rate will be lowered, which will theoretically make more US companies able to compete with China.

The broadest indicator of new loans in China and the indicator of credit growth in November exceeded forecasts, despite the fact that the government is stepping up efforts to reduce the risks in the financial system associated with rapid growth in debt.

The total amount of financing (including bank loans, off-balance-sheet loans, placement of shares and bonds) in China in November was 1.6 trillion yuan ($ 242 billion), compared with 1.04 trillion yuan a month earlier, according to figures from the People's Bank of China. Analysts interviewed by Bloomberg forecast a less significant growth rate - up to 1.25 trillion yuan.

The volume of new bank lending in national currency last month amounted to 1.12 trillion yuan ($ 169.27 billion), compared to 663.2 billion yuan in October. Experts predicted an increase of 800 billion yuan.

New loans in the sphere of shadow banking grew from 107 billion yuan in October to 173 billion yuan in November.

Efforts by China to reduce the level of debt intensified after the XIX Congress of the Communist Party, held in late October. Chinese President Xi Jinping said at the opening of the party congress that Beijing's efforts to limit high levels of debt will continue as part of the structural reforms on the supply side.

The head of the People's Bank of China, Zhou Xiaochuan, said in October that corporate debt levels in the country are relatively high, and household debt is growing too fast.