A new report from Fitch Ratings says that China’s economic growth rate could soon be impeded by Beijing’s ongoing crackdown on debt growth.
According to the report released by Fitch on Sunday, China’s efforts to rein in debt growth will eventually hit business investment, leading to a decline in the country’s annual economic growth rate of as much as 1 percentage point.
“It is hard to put a precise timeframe on when China will start to see the deleveraging of the real economy, but at some point it looks inevitable,” said Brian Coulton, Chief Economist at Fitch, according to Reuters.
“The scenario analysis we have undertaken suggests that, when it does a occur, it will be a process that will be a significant drag on growth.”
Fitch’s analysis indicates that if China wants to stabilise its corporate debt to GDP ratio by 2022, growth in business investment will need to fall by 5 percentage points per annum, holding back GDP growth by a little over 1 percentage point across the next several years.
Subsequent to 2022, the corporate debt to GDP ratio will continue to decline without producing any further declines in investment.
Fitch said that China’s corporate debt to GDP ratio is currently high by international standards, hitting 168% last year.
Beijing launched a heavy-handed deleveraging campaign over a year ago, in order to tamp down the exorbitant pile of debt accumulated in the wake of the 2008 Great Financial Crisis.
The huge volume of debt borne by China’s state-owned enterprises prompted President Xi Jinping to refer to it as the “priority of priorities” for the country’s deleveraging campaign last year.
A Bloomberg analysis from the end of 2017 forecasts that China’s total debt will rise to 327% of GDP by 2022, for a doubling compared to 2008 levels.
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