{"id":44165,"date":"2017-09-23T07:05:59","date_gmt":"2017-09-23T07:05:59","guid":{"rendered":"https:\/\/www.biphoo.com\/bipnews\/?p=44165"},"modified":"2017-09-23T07:05:59","modified_gmt":"2017-09-23T07:05:59","slug":"sp-says-downgraded-china-credit-growth-still-fast","status":"publish","type":"post","link":"https:\/\/www.biphoo.com\/bipnews\/business\/sp-says-downgraded-china-credit-growth-still-fast.html","title":{"rendered":"S&P says downgraded China as credit growth still too fast"},"content":{"rendered":"

S&P says downgraded China as credit growth still too fast<\/span><\/strong><\/span><\/h2>\n

S&P says downgraded China as credit growth still too fast: China\u2019s attempts to reduce risks from its rapid buildup in debt are not working as quickly as expected and credit growth is still too fast, S&P Global Ratings said on Friday, a day after it downgraded the country\u2019s sovereign credit rating.<\/span><\/p>\n

While S&P warned in June that a cut may be on the cards, it said it decided to make the call after concluding that China\u2019s \u201cde-risking\u201d drive that started early this year was having less of an impact on credit growth than initially expected.<\/span><\/p>\n

\u201cDespite the fact that the government has shown greater resolve to implement the deleveraging policy, we continue to see overall credit in the corporate sector to stay at a 9 percent point,\u201d Kim Eng Tan, an S&P senior director of sovereign ratings, said in a conference call to discuss the one-notch downgrade to A+ from AA-.<\/span><\/p>\n

\u201cWe\u2019ve now come to the conclusion that while we do expect some deleveraging in the next few years, this is likely to be much more gradual than we thought could have been the case early this year.\u201d<\/span><\/p>\n

China\u2019s finance ministry said the downgrade was \u201ca wrong decision\u201d that ignored the economic fundamentals and development potential of the world\u2019s second-largest economy.<\/span><\/p>\n

\u201cChina is able to maintain the stability of its financial systems through cautious lending, improved government supervision and credit risk controls,\u201d it said on its website.<\/span><\/p>\n

S&P\u2019s move put its rating in line with those of Moody\u2019s and Fitch, though the timing raised eyebrows as it came just weeks ahead of one of the country\u2019s most politically sensitive events, the twice-a-decade Communist Party Congress (CPC).<\/span><\/p>\n

S&P does not have a set schedule to review China\u2019s credit ratings, Tan said.<\/span><\/p>\n

\u201cAs part of our ongoing surveillance we do meet with the government and have calls with them. All these were done in the past few months,\u201d he told Reuters by phone later on Friday.<\/span><\/p>\n

But S&P is obliged to make a call \u201cwhen the data points to one direction or another\u201d, Tan said.<\/span><\/p>\n

\u201cUnfortunately it comes close to the Congress.\u201d<\/span><\/p>\n

KEY DEBT MEASUREMENT<\/span><\/strong><\/span><\/p>\n

Tan said broader lending by all financial institutions, excluding equity fund-raising, has started to rise after growing by a steady 12-13 percent in the last few years.<\/span><\/p>\n

\u201cThat was the key metric we look at…we believe while this growth of aggregate debt financing could come down somewhat over the next few years, it\u2019s not likely to come down very sharply.\u201d<\/span><\/p>\n

Indeed, China\u2019s new bank lending and total social financing (TSF), a broad measure of credit and liquidity in the economy, look set to hit record highs again this year.<\/span><\/p>\n

\u201cOne of the things that we do look for is more than just stabilization of financial risks, but actual decline or moderation in financial risks,\u201d Tan said.<\/span><\/p>\n

To be sure, China\u2019s economic growth has unexpectedly accelerated this year, racing ahead at 6.9 percent in the first half, but much of the impetus has come from record bank lending in 2016, a property boom and sharply higher government stimulus in the form of an infrastructure spending spree.<\/span><\/p>\n

While the crackdown on riskier lending has pushed up borrowing costs from corporate loans to mortgages, it has not yet dampened growth as many China watchers predicted.<\/span><\/p>\n

DON\u2018T WORRY?<\/span><\/strong><\/span><\/p>\n

The head of a government research institute said on Friday that China\u2019s rising debt is not a big concern since it funds infrastructure and urban development, which support future economic growth.<\/span><\/p>\n

\u201cChina\u2019s debt sustainability is different form Western countries and other developing countries…if you just look at the size of debt, the debt-to-GDP ratio, and reach a conclusion on the credit rating, it\u2019s very one-sided,\u201d Liu Shangxi, head of the Chinese Academy of Fiscal Sciences under the Ministry of Finance, told a news conference.<\/span><\/p>\n

But the International Monetary Fund warned this year that China\u2019s credit growth was on a \u201cdangerous trajectory\u201d and called for \u201cdecisive action\u201d, while the Bank for International Settlements said last September that excessive credit growth was signaling a banking crisis in the next three years.<\/span><\/p>\n

The IMF said in August it expected China\u2019s total non-financial sector debt to rise to almost 300 percent of its gross domestic product (GDP) by 2022, up from 242 percent last year.<\/span><\/p>\n

The IMF and others have called on China to drop its focus on growth targets, which add pressure to take on more debt.<\/span><\/p>\n

\u201cFrom our perspective, as long as any growth target cannot be obtained without very strong credit growth, that is something that will weaken the credit support for the government,\u201d S&P\u2019s Tan told Reuters.<\/span><\/p>\n

DEBT BATTLE HAS MIXED SUCCESS SO FAR<\/span><\/strong><\/span><\/p>\n

Analysts say China\u2019s campaign to cut financial risks this year has had mixed success so far, and opinions differ widely on whether Beijing is moving fast enough, or decisively enough, to avert a debt crisis down the road.<\/span><\/p>\n

Regulators appear to be making significant inroads in reducing interbank borrowing \u2013 perhaps the most pressing risk – and have curbed some riskier types of shadow banking.<\/span><\/p>\n

But analysts agree more comprehensive structural reforms are needed. Though the pace of credit growth may be easing by some measures, it continues to outpace economic growth.<\/span><\/p>\n

Moreover, a recent Reuters analysis showed corporate debt is growing faster than last year, with few companies using stronger profits to reduce debt.<\/span><\/p>\n

\u201cThere has actually been some progress recently in tackling credit risks, particularly in reining in the activities of the \u2018shadow\u2019 banking sector (and) broad credit growth has slowed,\u201d Capital Economics said in a research note.<\/span><\/p>\n

\u201cBut it continues to rise relative to GDP so the overall trend remains deeply unhealthy.\u201d<\/span><\/p>\n

Source:http:\/\/www.reuters.com\/article\/us-china-economy\/sp-says-downgraded-china-as-credit-growth-still-too-fast-idUSKCN1BW18Z<\/span><\/p>\n

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