The Chinese National Development and Reform Commission yesterday pledged to keep debt levels under control, even as Beijing rolls out fresh stimulus to support the stumbling economy as a trade war with the US deepens.
The comments came a day after China reported surprisingly weak data that showed investment growth has slowed to a record low.
In a bid to stabilize business conditions and weather the trade war, Beijing is stepping up infrastructure spending and injecting more funds into the banking system, which is lowering borrowing costs.
New loans by China’s largely state-backed banks last month surged 75 percent from a year earlier.
However, some China watchers fear Beijing’s shift in priorities might mark a return to its unrestrained, credit-fueled growth, reversing years of work by regulators to reduce risks in the financial system and stem a rapid build-up in debt.
Commission spokesman Cong Liang (從亮) told a media briefing that new spending on roads, railways, elderly care and education would not be as heavy as in the past and would aim to meet real demand, reducing the risk of over-capacity.
Authorities are also hoping to attract private investment in such projects to reduce the government’s debt burden, he said, adding that regulators are relaxing restrictions on local governments’ ability to sell special bonds to fund projects.
Several large rail projects have been announced in just the past few days.
Cong reiterated a pledge made by the Chinese Communist Party’s politburo last month that China would still meet this year’s economic growth target of about 6.5 percent, despite the trade war.
Analysts say that would surely require more spending, but Cong said that the government would push ahead with its “structural deleveraging” in a gradual and orderly way.
Highlighting the dangers policymakers face in stimulating the slowing economy without fueling asset bubbles, data yesterday showed China’s new home prices last month accelerated at their fastest pace in almost two years.
China would “resolutely curb” property price rises, Cong said.
“We still have sufficient capacity to cope with impact from escalating trade frictions and ensure the successful completion of the economic and social development goals set at the beginning of the year,” Cong said.
At the start of this year, China’s leaders had made risk and debt reduction their top priority, even if it led to somewhat slower growth.
That scenario appeared to be playing out about to plan earlier in the year, before the trade war erupted, with growth easing only slightly to 6.7 percent in the second quarter year-on-year.
Some economists are now cutting their second-half and full-year growth estimates for China in the wake of Tuesday’s weak readings.
So far, official data show that trade frictions have had limited effects on the economy, and any impact from higher tariffs will be “controllable,” Cong said.
Many local governments and state firms are still saddled with debt following China’s massive stimulus during the global financial crisis.
Despite some progress in its risk crackdown in the past few years, China is still among the economies most at risk of a banking crisis, the Bank for International Settlements said earlier this year.
China’s overall debt level last year rose 2.7 percentage points to 250.3 percent of GDP, according to the central bank.
The corporate debt ratio fell 0.7 percentage points to 159 percent of GDP — the first decline since 2011 — but the household debt ratio climbed 4 percentage points to 55.1 percent of GDP.
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