People’s Bank of China Governor Yi Gang will make tackling debt a priority this year.
Speaking at the virtual World Economic Forum, he also stressed that monetary policy will “continue to prop up” the world’s second-largest economy.
Walking a fine line between the two will be crucial as the shockwaves from the Covid-19 pandemic cripple global growth and dampen consumption.
“This is a delicate balance between supporting economic recovery [and] at the same time preventing risk,” Yi said on Tuesday via a video link.
- Rising debt levels are becoming a major problem for Beijing’s economic brains trust.
- China’s debt has been jumping by nearly 20% a year since the global financial crisis in 2009.
- The PBOC has reported that the total debt-to-output ratio was close to 280% last year.
- Heavy borrowing by local governments to fund infrastructure projects is increasing the risks.
- A raft of stimulus measures to revive the economy and increase GDP growth has added to the problem.
What was said: “Monetary policy will continue to prop up the economy … at the same time we will watch for risks. One [concern] is that the macro leverage ratio of China increased last year. [Another] risk is [that] non-performing loans are growing, [But] we will ensure our policies are consistent and stable, and we will not exit from [stimulus measures] prematurely,” Yi said.
Reaction to the news: “China should stop setting annual economic growth targets, as its overall level of debt is rising at the fastest rate since the global financial crisis,” Ma Jun, who sits on the PBOC monetary policy committee, told the South China Morning Post.
China Factor comment: The debt dilemma has not just appeared overnight. For more than a decade, the ruling Communist Party government has talked tough about the issue as the debt mountain continued to grow. Even now, the true scale of the problem could dwarf the official numbers.