China says growth of key debt ratio clearly slowing, stabilising

[BEIJING] The growth of China's overall leverage ratio has been clearly slowing and is now stabilising, the state planner said on Monday, days after S&P downgraded the country's sovereign debt rating.

China will focus on lowering leverage ratios among state-owned firms and winding down of "zombie firms" 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's credit rating last week, which followed a similar move by Moody's Investors Service in May. Both firms cited the risks from China's rapid build-up in debt and high overall debt levels as a major long-term concern.

S&P said China's 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 (BIS) which showed China's overall leverage ratio is still growing, but at a slightly slower pace.

BIS data published last week showed China's total non-financial debt was 257.8 per cent of gross domestic product (GDP) at the end of the first quarter, up from 250.4 per cent in the same period a year earlier, but only a slight increase from 257.0 per cent at the end of 2016.

China's non-financial corporate leverage ratio declined sequentially for the third straight quarter to 165.3 per cent in the first quarter, the BIS data showed.

The BIS warned last September that China's excessive credit growth was signalling a banking crisis in the next three years, while the International Monetary Fund warned this year that China's credit growth was on a "dangerous trajectory" and called for "decisive action".

One way the government is looking to lower leverage ratios is by converting some of the debt into equity.

REUTERS