China’s debt challenge: stylised facts, drivers and policy implications

Guonan Ma and James Laurenceson ()
Additional contact information
James Laurenceson: University of Technology Sydney

No GRU_2016_020, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

Abstract: This paper begins by showing that even after conditioning for factors that might justifiably lead to a country having relatively high leverage, China remains a debt outlier. In this sense China can be regarded as over-leveraged and its debt may present a potential risk to growth and financial stability. The corporate sector is central to China’s debt story, accounting for two-thirds of the total. The corporate sector has also been mostly responsible for China’s leverage cycles, including the leveraging up since 2008 and an earlier deleveraging phase starting in 2003. Two major but under- appreciated drivers of Chinese corporate leverage cycles are then identified. The most important is the share of internally-funded corporate capital expenditure, which is a combined consequence of evolving corporate earnings and capital expenditure. The second is the rising importance of real estate and construction firms as holders of corporate debt. China’s corporate leverage landscape is also shown to be more complex than a story of zombie state-owned enterprises in industrial segments with excess capacity being ever-greened with loans from state banks. A balanced mix of policy responses will be needed to manage a warranted and orderly deleveraging cycle in the years ahead.

Keywords: China; debt; leverage; corporate earnings; corporate capital expenditure (search for similar items in EconPapers)
JEL-codes: E21 E50 H81 (search for similar items in EconPapers)
Pages: 33 pages
New Economics Papers: this item is included in nep-mac
References: Add references at CitEc
Citations:

Published in Singapore Economic Review, 16 October 2017

Downloads: (external link)
https://www.cb.cityu.edu.hk/ef/doc/GRU/WPS/GRU%232016-020%20Guonan%20M.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cth:wpaper:gru_2016_020

Access Statistics for this paper

More papers in GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit Contact information at EDIRC.
Bibliographic data for series maintained by GRU ( this e-mail address is bad, please contact ).