A new Reuters analysis claims that Beijing’s much-vaunted deleveraging campaign is doing little to contain rapid growth in the country’s debt levels.
The analysis of 2,146 listed Chinese companies concluded that their total debt at the end of September posted a year-on-year increase of 23%, for the most rapid rate of growth since 2013.
The analysis excluded financial companies yet still covered three-fifths of China’s listed concerns, which the central government has referred to as the “priority of priorities” when it comes to deleveraging.
According to the analysis the real estate sector has led debt gains over the past five years followed by the industrial sector, with their shares of total debt for the companies covered rising by 7 percentage points and 3 percentage points respectively since the end of 2012.
Debt servicing costs have accounted for around 25% of the revenues reaped by state-owned enterprises over the past few quarters, rising to a five year peak of 27% in the second quarter before sliding to 24.47% in the third quarter.
The use of bond issuance to borrow is easing amongst companies, with aggregate social financing of corporate bonds in October posting year-on-year growth of 4.4% to reach 18.34 trillion yuan ($2.77 trillion), for the lowest growth rate in two years.
According to Reuters this ailing growth would imply that corporations are turning to off-balance sheet forms of shadow bank funding to make up the shortfall, compounding risk for the Chinese financial sector as a whole.
Total social financing, which includes shadow banking activity and serves as a measure of new credit extension in a given period, was 1.04 trillion yuan for October, with cumulative total social financing standing at 172.2 trillion yuan at the end of the month.
According to the analysis China is seeing extremely rapid growth in household debt in tandem with Beijing’s failure to contain leverage in the corporate sector, with outstanding consumer loans leaping by nearly 30% since the the middle of 2016 to hit 30.2 trillion yuan in October.
People’s Bank of China data further indicates that yuan-denominated property loans reached 31.1 trillion yuan and individual mortgage loans totalled 21.1 trillion yuan as of the third quarter of 2017.
Government debt remains the one bright spot for China’s deleveraging efforts, standing at 46.9% of GDP according to the latest data from the Bank of International Settlements.