China’s Debt Policy Change
2021.04.05 Financial Times Headine
2021.04.05 Financial Times Headline: China tells banks to curb lending as fears rise over property boom
China’s central bank is shifting its directive from supporting economic growth to controlling debt burden(constraint on cross-border lending and loan levels to smaller banks), which has been surged by credit risks from China’s booming property market.
Followed by last year’s massive cut on reserve requirement ration(RRR) and interest rates to back up economy during the pandemic, China’s total domestic debt was estimated to increase in 335 percent to GDP in 2020, according to The Institute of International Finance (IIF). The spike in China’s debt level was mainly caused by last year’s further expansion policy against the pandemic. As the surging debt level has been accumultive since 2008, recent increase raises concern of bad debts. According to South China Morning Post(2021), consumer debt was the fastest growing segment of China’s total debt. Since 2008, China initiated supporting its property market with a desire to boost economic development. Its solution was debt. By issuing bonds and loosing loan policy, China expanded its economy with rising development rates.
Being the first country to overcome the pandemic, China is predicted by the International Monetary Fund(2021) to contribute more than one fifth of the increase in global gross domestic product until 2026. Standing in this position, China should bear in mind of the volatility of towering debt level and take delicate approach to embrace overall debtor’s financial condition, as default risk could possibly devastate domestic and global economic sustainability at no predicted timeframe.
Reference Links
https://www.reuters.com/article/us-health-coronavirus-china-pboc-exclusi-idUSKBN21Q0JO
https://www.scmp.com/economy/china-economy/article/3084979/china-debt-how-big-it-who-owns-it-and-what-next
https://news.kotra.or.kr/user/globalBbs/kotranews/3/globalBbsDataView.do?setIdx=242&dataIdx=178505
https://www.bloomberg.com/news/articles/2021-04-06/china-s-growth-set-to-drive-world-economy-in-post-pandemic-years
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