A contrarian take on China’s enormous debt load - China’s latest business and technology news - SupChina

A contrarian take on China’s enormous debt load – China’s latest business and technology news

“Doomsayers have plenty to work with in China,” says Andrew Polk of Trivium/China, a Beijing-based research firm, speaking primarily of China’s phenomenal debt-to-GDP ratio, which has ballooned from 160 percent less than a decade ago to 260 percent today. It “seems almost guaranteed to herald a financial crash or at least a major correction, quite likely followed by years of stagnation,” he writes in Bloomberg View.

But Polk actually argues the opposite: Several signs show that China may be about to turn the corner on debt, or at least mitigate the worst effects of it. These signs are:

  • A rapidly diminishing credit intensity ratio. Whereas in the first halves of the years 2012-2016, China took on average over four dollars in loans to create just one dollar of GDP growth, this year to date it has taken just 2.9. That’s almost a 30 percent reduction.
  • A commodity boom — in steel, coal, oil, and gas — is helping some of China’s most indebted companies “to service their existing liabilities, which means they don’t have to take on as much new debt to pay off the old.”
  • Finally, Polk calculates that 12 percent of China’s corporate debt has been renegotiated in a productive way since the middle of 2016, as a result of “China’s banking regulator…pushing financial institutions to establish creditor committees.”

Read more selections from the cascade of recent commentary on debt in China on SupChina:

Lucas Niewenhuis

Lucas Niewenhuis is an associate editor at SupChina who helps curate daily news and produce the company's newsletter, app, and website content. Previously, Lucas researched China-Africa relations at the Social Science Research Council and interned at the Council on Foreign Relations in New York. He has studied Chinese language and culture in Shanghai and Beijing, and is a graduate of the University of Michigan.