- China’s efforts to shore up sagging economic growth are leading to a resurgence in indebtedness, underlining the challenge President Xi Jinping’s government faces in curbing financial risk.
Asian Giant china has been booming economically for decades and has also become technologically advanced to the point of having one of the best and most sort after phones, and electronic appliances. The nation is currently experiences an economic hitch which they least expected amid the sustained rate of economic growth over the years.
China’s efforts to shore up sagging economic growth are leading to a resurgence in indebtedness, underlining the challenge President Xi Jinping’s government faces in curbing financial risk. The nation’s total stock of corporate, household and government debt now exceeds 303% of gross domestic product and makes up about 15% of all global debt, according to a report published by the Institute of International Finance. That’s up from just under 297% in the first quarter of 2018.
The real growth of the world’s second-largest economy slowed to a record-low pace in the second quarter amid the negative effects of the trade war with the U.S. as well as longer-term factors such as its aging society. In a bid to manage the slowdown, the government has tried to funnel credit to the private sector and encourage domestic consumption — at the price of higher debt
While real gross domestic product rose 6.2% in the April-June period from a year earlier, a further slowdown compared with the 6.4% expansion in the first quarter. For now, accelerated debt growth appears to be a price policy makers are willing to pay in order to brake the slowdown. Policy makers have beefed up fiscal support, including easing the rules for using government debt in some infrastructure projects. The State Council, China’s cabinet, said last month that banks should try to sell more than 180 billion yuan ($26.2 billion) of bonds to fund small firms in 2019 as well as lend more to the manufacturing and services sector.
There was a turnaround from 2018’s sweeping campaign to curb off-balance sheet corporate borrowing from the so-called shadow banking sector, a signature campaign by Xi. While that effort did have some success, borrowing in other sectors offset it, according to the IIF. The marked slowdown in the economy also affects the burden that debt places on the economy. With nominal GDP growth now running at about 8%, far outpaced by the growth in aggregate financing at about 11%, means that the debt-to-GDP ratio is bound to increase, according to Raymond Yeung at Australia & New Zealand Banking Group Ltd.
