China’s Corporate Debt Unexpectedly Rises At Fastest Pace In Four Years, As A New Risk Emerges
Have you heard the one about the priest, the rabbi and China’s deleveraging? We forget how it goes, but it’s pretty damn funny, especially the last part after a Reuters report that following China’s repeated vows by Beijing it would reduce the country’s unprecedented sovereign, municipal, corporate and household leverage, China’s debt is not only rising, but growing at the fastest pace in four years.
It’s especially funny because for years China’s top officials have – well – lied, touting their ambitious policy priority to wean the world’s second-largest economy off high levels of debt, but there is not much to show for it. On the contrary, the debt pile at Chinese firms has been climbing in that time, with levels at the end of September growing at the fastest pace in four years.
As shown in the chart below, a Reuters analysis of 2,146 China listed firms showed their total debt at the end of September jumped 23% from a year ago, the highest pace of growth since 2013. The analysis covered three-fifths of the country’s listed firms, but excluded financials, which have seen the brunt of government de-risking and deleveraging efforts so far.
The analysis revealed that debt in the real estate sector increased the most over last five years, followed by industrials, with the share of industrials in China’s total corporate debtload going up by 3% psince the end of 2012, while relative real estate debt rose by 7%.
In September, as shown here before, state-owned enterprises also reported a much faster pace of growth in their debt, as the government quietly backstopped quasi-private companies. In addition, last month we reported that as part of China’s latest bailout of the financial sysmte, Beijing was set to buy 24% of all residential real estate offered for sale in 2017.
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