World Economy

China Corporate Debt Fatal to Economy

China Corporate Debt Fatal to EconomyChina Corporate Debt Fatal to Economy

Various economic bodies have been worried about China’s corporate debt levels. That’s hardly surprising given that China’s total debt load rose to 250% of gross domestic product last year.

Official comment out of the country itself is increasingly singing the same song, News.Markets reported.

China should take steps to curb the flow of capital into the property market and state-owned companies to help slow the rise of debt levels in the economy, Ma Jun, the People’s Bank of China’s chief economist, told the China Business News in an interview on Monday.

The country can’t reduce leverage ratios too fast. That would hurt growth and employment. But it must slow the long-term debt rise, Ma said.

“We should take a lot of measures to curb excessive bubbles in the real estate sector, curb the flow of excessive financial resources into the real estate sector.”

The IMF has already warned that the corporate debt load (145% of GDP) could mean slower economic growth. And financial information provider Standard and Poor’s was worried about China’s corporate debt levels earlier this year.

Its analysis suggested that China will consume two-thirds of all global new credit by 2020 as the state sectors give way to the corporate. Outstanding debt could hit $75 trillion by 2020, it said.

S&P’s report highlighted China’s opaque and ever-expanding corporate sector as a key tail risk for global credit.

Ma is not the first official to wonder aloud about the state of China corporate debt.

In June, Li Yang warned that the debt links between the state and industry could be “fatal” for the economy. He’s a senior researcher with the China Academy of Social Sciences, the leading government think tank.