Author Topic: The hidden risks of China's war on debt  (Read 870 times)

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The hidden risks of China's war on debt
« on: July 05, 2018, 01:50:24 PM »
The hidden risks of China's war on debt
Lending clampdown sparks fears of an economic chilling effect

HENNY SENDER, Nikkei Asian Review columnist
February 28, 2018 14:00 JST

https://asia.nikkei.com/Spotlight/Cover-Story/The-hidden-risks-of-China-s-war-on-debt

HONG KONG -- When the Bank of Jinzhou, based in China's northeastern rust belt, went public on the Hong Kong stock exchange two years ago, its finances were a wreck. It had issued 34 billion yuan ($5.36 billion) worth of "wealth management products" that are hallmarks of China's sprawling "shadow" banking sector, and it was owed 9 billion yuan by an unnamed borrower who was under investigation by Hong Kong regulators. The bank, like many others across China, was loaded with risky debt -- the kind that China's leadership in Beijing is now determined to stamp out.

After a massive buildup over the past decade, the government is waging an all-out war on debt. In December, President Xi Jinping said slashing debt was one of the "critical battles" Beijing would fight over the next three years, along with reducing pollution and poverty. Regulators have cracked down on the shadow banking sector, and the government has put the brakes on Anbang Insurance Group, HNA Group and Dalian Wanda Group, conglomerates that spent billions on debt-fueled acquisition sprees for trophy assets around the world. On Feb. 23, regulators charged Anbang founder Wu Xiaohui with fraud and embezzlement and officially took over its operations.

Together, such efforts have sent a strong message about Beijing's determination to purge the financial system of excessive risk-taking -- a message that is expected to be driven home when the National People's Congress begins March 5. In the process, regulators have helped ease fears that China's debt mountain would lead to a systemic crisis on the order of the 2008 global financial meltdown or the 1997 Asian financial crisis.

For all this progress, however, fears remain. First, there are lingering concerns over the sheer size of the China's debt pile, which UBS estimates represented 272% of GDP at the end of 2017. But there are also growing worries about the potential unintended consequences of the authorities' efforts to rein in that debt.

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