Companies Have Too Much Debt, Says China’s Central Bank

18. October 2017.

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China’s central bank is raising concerns that corporates in the nation have taken on too much debt, according to news from Bloomberg on Monday (Oct. 16).

The People’s Bank of China’s Governor Zhou Xiaochuan is calling for fiscal reforms to address the issue, reports said.

“The main problem is that corporate debt is too high,” Zhou reportedly said during a panel held Sunday in Washington for a Group of 30 seminar. “We need to pay further [attention] to deleveraging and [strengthening] policy for financial stability.”

China’s rising corporate debt has raised concerns among several experts and policymakers in recent months. The International Monetary Fund (IMF) — which, along with the World Bank, held the Group of 30 seminar — raised China’s economic outlook this week but similarly highlighted concerns that this economic expansion will coincide with increased debt, which may “mask risks,” reports said.

The IMF raised concerns about China’s rising corporate debt levels last year, too, noting that bad debts are also on the rise. Reports in August by Bloomberg said there were 17 defaults in the year, which ended June 30, in China’s bond market, nearly three times the number of defaults recorded in 2015. Bad corporate debt levels reached a 10-year high, surpassing $614 billion, reports last year said.

The People’s Bank of China Governor Zhou Xiochuan did note that policy seems to have initiated a reversal in rising debt levels among corporates, households and government entities. “Although it’s a very moderate decline, anyway, the trend has been changed,” he said, according to reports.

He added that some corporate debt is held by local governments that own financing vehicles, which lowers the overall estimate of corporate debt levels from 160 percent of gross domestic product (GDP) to between 120 and 130 percent of GDP. It also means government debt stands at 70 percent of GDP, compared to estimates of 36 percent.

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