High Leverage Is Root of Macro Financial System Weakness, Central Bank Chief Warns
High leverage is the root of weakness in China’s macro financial system, the chief of the country’s central bank says.
At the end of 2016, China’s overall debt was 247% of GDP with corporate debt at 165% of GDP, which has drawn concern from international organizations such as the International Monetary Fund.
To reduce leverage, People’s Bank of China Governor Zhou Xiaochuan recommends debt-for-equity swaps, equity financing, developing private equity funds, and speeding up dissolving zombie firms. In a guide to the 19th Party Congress report, Zhou also criticized local governments for using methods such as debt disguised as equity to increase leverage.
“China’s finance industry is undergoing a period where the ease and incidence of risk occurring is high,” wrote Zhou, adding that nature of the risks is “multi-faceted, hidden, complex, may occur suddenly, and is contagious.”
Zhou also said the credit risk of financial institutions has undermined confidence at home and abroad in China’s financial system. Bad debt has eroded banks’ capital and ability to withstand risk, Zhou wrote. Defaults in the bond market have increased, while bond issuance has decreased, he said.
Two weeks ago, Zhou warned of a “Minsky Moment” on the sidelines of the 19th Communist Party National Congress, which describes a situation in which asset values collapse suddenly as a result of an unsustainable buildup of debt and speculation fueled by credit.
Contact reporter Liu Xiao (email@example.com)
- 1China’s Moon Explorer Posts Photo of Sprouting Cotton Plant
- 2Huawei Canada Exec Quits as Scandal Continues to Embroil Company
- 3Luckin Coffee Reportedly Seeks IPO in Hong Kong
- 4Bank of China to Test Waters for Perpetual Bonds
- 5Apple Chief Counsel Accuses Qualcomm of Holding Smartphone-Makers for ‘Ransom’
- 1Power To The People: Pintec Serves A Booming Consumer Class
- 2Largest hotel group in Europe accepts UnionPay
- 3UnionPay mobile QuickPass debuts in Hong Kong
- 4UnionPay International launches premium catering privilege U Dining Collection
- 5UnionPay International’s U Plan has covered over 1600 stores overseas