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China鈥檚 leverage ratio rise slowing
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The growth of China鈥檚 overall leverage ratio has been clearly slowing and is now stabilizing, the state economic planner said yesterday, days after S&P downgraded the country鈥檚 sovereign debt rating.
China will focus on lowering leverage ratios among state-owned enterprises and winding down of 鈥渮ombie firms鈥 to reduce leverage ratios and control debt risks, the National Development and Reform Commission said in a statement on its website.
S&P Global Ratings cut China鈥檚 credit rating last week, which followed a similar move by Moody鈥檚 Investors Service in May. Both firms cited the risks from China鈥檚 rapid build-up in debt and high overall debt levels as a major long-term concern.
S&P said China鈥檚 attempts to reduce debt risks so far this year are not working as quickly as expected and credit growth is still too fast.
The NDRC cited the latest data from the Bank of International Settlements which showed China鈥檚 overall leverage ratio is still growing, but at a slightly slower pace.
BIS data published last week showed China鈥檚 total non-financial debt was 257.8 percent of gross domestic product at the end of the first quarter, up from 250.4 percent in the same period a year earlier, but only a slight increase from 257 percent at the end of 2016.
China鈥檚 non-financial corporate leverage ratio fell sequentially for the third straight quarter to 165.3 percent in the first quarter, the BIS data showed.
The BIS warned in September last year that China鈥檚 excessive credit growth was signaling a banking crisis in the next three years, while the International Monetary Fund warned this year that China鈥檚 credit growth was on a 鈥渄angerous trajectory鈥 and called for 鈥渄ecisive action.鈥
One way the government is looking to cut leverage ratios is by converting some of the debt into equity. The NDRC said yesterday that debt-for-equity swap deals worth 1.3 trillion yuan (US$196 billion) and involving 77 companies had been signed through September 22.
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