Chinese Debt to Expand in 2019 Yet Shadow Banking Risk on the Wane: Morgan Stanley


US investment bank Morgan Stanley expects China’s debt-to-GDP ratio to continue to rise in 2019, yet management of risk by the Chinese central government to undergo improvement.

Morgan Stanley’s Chief China Economist Robin Xing told CNBC that China’s debt-to-GDP ratio will rise by three to four percentage points this year.

Risk in relation to this debt will be mitigated, however, by Beijing’s ongoing efforts to curb the shadow banking sector.

“Despite the temporary increase in the debt-to-GDP ratio, it’s much more manageable and transparent than 2013 to 2017, when shadow banking was surging,” said Xing.

“This time it’s a bit different because they are using more manageable,or transparent leverage, rather than re-opening shadow banking.”

The Chinese central government is pushing for the financial sector to step up lending to the real economy, with an especial emphasis on the private enterprise, as ongoing trade tensions with the US continue to cast a pall upon growth.

The first month of 2019 saw the extension of a record 3.57 trillion yuan in new loans, which analysts say reflects pressure applied by authorities upon Chinese financial institutions.