CHINA’S DEBT CHALLENGE: STYLIZED FACTS, DRIVERS AND POLICY IMPLICATIONS

Guonan Ma and James Laurenceson ()
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Guonan Ma: Faculty of Business Administration University of Macau, E22, Avenida da Universidade, Taipa, Macau, China
James Laurenceson: Australia-China Relations Institute (ACRI), University of Technology Sydney (UTS), Level 18, Tower Building, 15 Broadway, Ultimo NSW 2007, Australia

The Singapore Economic Review (SER), 2019, vol. 64, issue 04, 815-837

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 levels may present potential risks to growth and financial stability. The corporate sector is central to China’s debt story, accounting for two-thirds of the total. Moreover, the corporate sector has 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; capital expenditure (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0217590817450011

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