China says meets debt control target as it ramps up economic support

Chinese 100 yuan banknotes are seen in a counting machine while a clerk counts them at a branch of a commercial bank in Beijing, China, in this March 30, 2016 file picture. (Reuters)
Updated 25 February 2019
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China says meets debt control target as it ramps up economic support

  • Concern about China’s debt is rising again as Beijing ramps up support for a slowing economy

BEIJING: China has met its target for reducing debt levels but will keep cracking down on riskier types of financing to contain risks to its financial system, the banking and insurance regulator said on Monday, urging banks to step up lending to smaller companies.
Concern about China’s debt is rising again as Beijing ramps up support for a slowing economy. New bank loans hit a record in January despite increasing bad loans and record defaults in 2018.
Though top officials have repeatedly pledged not to resort to another massive spending spree like that during the global financial crisis, analysts say it is vital for policymakers to revive weak credit growth to avoid a sharper slowdown.
“After two years of work, various financial disorders have been effectively curbed,” Wang Zhaoxing, vice chairman of the China Banking and Insurance Regulatory Commission (CBIRC), told a news conference.
“This breaks overseas predictions that the ‘barbaric’ growth of shadow banking and the financial overheating of real estate might lead to systemic financial risks and crises in China.”
China has never revealed a specific target for its multi-year risk containment campaign and does not release comprehensive statistics on debt loads.
But documents provided by the regulator said the leverage level in the economy stabilized in 2018, meeting the target, after growing by an average of more than 10 percent a year.
“Our leverage level is basically stable. This is a marvelous achievement,” said Zhou Liang, another CBIRC vice chairman.
Authorities have tried since a 2015 downturn to curb riskier types of financing and a build-up in debt which international monitors like the International Monetary Fund say could trigger a banking crisis in the world’s second-largest economy.
However, the regulatory pressure drove up borrowing costs last year and made it harder for small firms to secure funding, dragging on business activity and prompting policymakers to shift their focus back to growth boosting measures.
Analysts worry that any halt to the financial risk campaign may also delay much-needed structural reforms, such as allowing market forces to dictate a more efficient use of capital.
Corporate bond defaults hit a record last year, while banks’ non-performing loan ratio hit a 10-year high, but authorities have kept pressure on largely state-owned, banks to keep lending to cash-strapped companies facing “temporary” difficulties.
The last round of China’s leverage crackdown is over for now, said Hao Zhou, senior emerging markets economist at Commerzbank, adding that the cycle of policy tightening and loosening normally shifts every two to three years.
“Although China is loosening now, it’s possible that the loosening will end as soon as economic growth gathers momentum,” he said.

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The regulator said in a statement on Monday that it had ordered all of the country’s banks to sharply increase financial support for private companies, with big state-owned banks told to increase loans to smaller firms by more than 30 percent.
The private sector accounts for over half of China’s economic growth and most of its new jobs, but firms have been facing higher borrowing costs and a tougher time obtaining financing as they carry higher credit risks than state firms.
The regulator said banks will now be prohibited from discriminatory practices when approving loans for private firms.
To crack down on “rampant and blind” expansion of financial institutions, the CBIRC has targeted practices ranging from less regulated interbank activities to the shadow banking sector, which has been a major funding source for private companies.
It has also pressed banks to speed up disposal of bad loans and encouraged companies to convert debt into equity to free up capital for new lending.
The scale of high-risk assets shrank by about 12 trillion yuan ($1.79 trillion) in the previous two years, while lenders disposed of 3.48 trillion yuan in non-performing loans, the regulator said.
More than 2 trillion yuan worth of debt-for-equity swap deals have been signed by lenders, it added, though details of many of those arrangements have been murky.
It has also banned consumer loans from being used illicitly to speculate on property to avoid fueling real estate bubbles.
The CBIRC said shadow banking risks have now been contained, which will allow policymakers to better balance the need for stable economic growth this year while continuing to reduce financial risks.
The IMF estimated in 2017 that China’s total non-financial sector debt would rise to almost 300 percent of its gross domestic product (GDP) by 2022, up from 242 percent in 2016.
But hidden borrowing by Chinese local governments could be as high as 40 trillion yuan — amounting to “a debt iceberg with titanic credit risks,” S&P Global Ratings said in a report late last year.
When including off-balance sheet local government debt, China’s ratio of government debt to gross domestic product (GDP) could have reached an “alarming” level of 60 percent in 2017, according to S&P. ($1 = 6.6903 Chinese yuan renminbi)


Gulf countries strengthen oil coordination amid tensions: Kuwait

Updated 20 May 2019
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Gulf countries strengthen oil coordination amid tensions: Kuwait

  • ‘It is normal amid this escalation that Kuwait and the Gulf Cooperation Council countries take these steps’
  • Kuwait was in ‘constant contact’ with its ally, the US

KUWAIT CITY: Kuwait’s deputy foreign minister said countries in the Gulf have strengthened coordination to provide oil to global markets amid increased regional tensions.
“It is normal amid this escalation that Kuwait and the Gulf Cooperation Council (GCC) countries take these steps,” Khalid Al-Jarallah told reporters late Sunday on the sidelines of a Ramadan sit-down organized by the Iraqi embassy.
“There is cooperation and coordination between Kuwait and the Gulf countries to provide guarantees for oil tankers and continuous supply of energy to global markets.”
Jarallah’s comments come days after sabotage attacks against tankers in highly sensitive Gulf waters and the bombing of a Saudi pipeline — the latter claimed by Iran-aligned Yemeni rebels.
Both attacks targeted routes built as alternatives to the Strait of Hormuz, the conduit for almost all Gulf exports.
The US Fifth Fleet headquartered in Bahrain said the six-nation Gulf Cooperation Council began “enhanced security patrols” Saturday in international waters, in “tight coordination with the US navy.”
Iran has repeatedly threatened to close the strait in case of war with the United States, which earlier this month announced it was sending an aircraft carrier and strike group to the region.
Kuwait’s deputy foreign minister said “tension was escalating quickly” but he remained hopeful.
He added Kuwait was in “constant contact” with its ally, the US.
On Saturday, OPEC giant Saudi Arabia called for urgent meetings of the GCC and the Arab League to discuss recent “aggressions and their consequences” in the region.
The two summits are scheduled to be held in Makkah on May 30.
Jarallah welcomed the kingdom’s invitation, saying Kuwait was keen to take part in discussions on issues “potentially dangerous” to the region.