A new survey from Bloomberg sees China’s debt levels declining in 2018 as a result of Beijing’s dogged deleveraging campaign.
According to the median estimate of a survey of 21 economists in March, China’s total debt will remain at 260% of GDP by the end of 2018, holding steady with the level a year previously.
This means that growth in China’s debt will ease to approximately the same level as economic growth in nominal terms.
The economists surveyed estimate China’s outstanding debt to be between 200% and 283% of GDP as of the end of 2017, with Bloomberg Economics putting it at 266%.
Beijing has indicated that continue its deleveraging campaign in 2018, with an especial focus on state-owned enterprises, local government debt and the indiscretions of the banking sector.
While China’s dependence upon credit-fuelled growth since the Great Financial Concerns has created concerns that deleveraging could impede economic growth, observers such as Bloomberg columnist Daniel Moss say that the rise to prominence of the country’s services sector and domestic consumption will pick up the slack, particularly given the former’s lesser reliance upon debt financing.
Raymond Yeung, chief greater China economist in Hong Kong for Australia & New Zealand Banking Group, concurs with Moss’s assessment, pointing to the disproportionate flow of credit to unproductive parts of the economy.
“The negative impact on growth due to this deleveraging should be small,” said Yeung to Bloomberg.
Other analysts are far less sanguine about Beijing’s ability to contain debt levels, such as Xie Le, chief Asia economist at Banco Bilbao Vizcaya Argentaria SA in Hong kong.
Le expects China’s debt-GDP ratio to rise to 270% in 2018 from 260% in 2017, before stabilising at around 280 – 290% at the end of the decade.
Xia points to China’s reluctance to accommodate bankruptcies and defaults as the reason why the ongoing deleveraging campaign is likely to be of limited effect.
