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China vows to contain corporate debt levels as inflation heats up

China vowed on Tuesday to contain high company debt levels. (AFP)
BEIJING: China vowed on Tuesday to contain high company debt levels and further cut excess coal and steel capacity, as Beijing attempts to maintain solid and more balanced economic growth while avoiding destabilising asset bubbles.
The world’s second-largest economy likely grew around 6.7 percent last year — roughly in the middle of the government’s target range — but it faces increasing uncertainties in 2017, the head of the country’s state planning agency told a news briefing.
Global investors are buzzing over whether China’s leaders will be willing to accept more modest growth this year, amid worries about the risks from years of debt-fueled stimulus driven by the political obsession with meeting official targets.
China’s credit growth has been “very fast” by global standards, and without a comprehensive strategy to tackle the debt overhang there is a growing risk it will have a banking crisis or sharply slower growth or both, the International Monetary Fund (IMF) said in October.
“Although the domestic economy is stable and improving, it still faces contradictions and problems,” said Xu Shaoshi, the top official at the National Development and Reform Commission NDRC).
“We have the confidence, conditions and ability to ensure the economy operates within a reasonable range.”
Xu said China will not allow debt of non-financial firms to rise beyond current levels, and will step up efforts to encourage companies to restructure their debts. China’s corporate debt has soared to 169 percent of gross domestic product (GDP).
China’s leaders are likely to accept growth this year of around 6.5 percent, policy insiders say.
In theory, that would give the government more room to focus on tackling the nation’s debt pile, and on tamping down speculation that was seen last year in the housing, commodities and debt markets.
But an official tap on the brakes that is too vigorous would threaten to stall economic momentum.
After a rough start to 2016, China’s economy performed better than many economists had expected, with higher government infrastructure spending, a housing rally and record lending by state banks fueling a construction boom.
Producer prices, in particular, saw a stunning turnaround, emerging in September from nearly five years of deflation and helping to boost reflationary pressures worldwide.
That helped put the long ailing manufacturing sector on steadier footing, boosting profits and giving factories more cash flow to whittle down a mountain of debt.
Data on Tuesday showed producer prices continued to rise as 2016 drew to a close, with producer inflation surging 5.5 percent in December year-on-year, the fastest in more than five years, as the prices of coal and building materials soared.
Along with a rebound in demand, state-mandated cuts in industrial capacity have helped fuel the spike in prices.

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