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China's delay may lead to measures leading to high debt, analysts say



Construction of a residential and resort area in Liaocheng, China.

Zhang Peng | LightRocket | While China's economic growth slows down, some analysts say Beijing may return to some of its old policies – such as building more infrastructure and lightening ownership control – and this could increase existing concerns about high levels of ownership. long.

On Monday, the second largest economy in the world reported a 6.2% growth for the second quarter. Although China's official data is often contested, the data reflects the slowest annual growth for a quarter of at least 27 years.

In addition to slowing global growth and trading tensions with the US, China faces many challenges. country. Beijing is trying to reduce the country's dependence on debt for growth, stimulate consumption and improve the ability of private companies to obtain funding.

But the decline in growth will require more incentives by the end of the year, analysts predict. And they expect that the support, which is already happening, will come in the form of more infrastructure costs and, in turn, an increase in loans.

"Over the next six months, monetary policy will play a very limited role," said Dan Wang, an analyst at the Economist Intelligence Unit, noting that the central bank is likely to make only policy-specific sectoral changes. "There is still a fiscal policy that will play a leading role." As for the growth engine, it is still an investment because consumption is very weak this year. "

Retail sales jumped 9.8% in June compared to the previous year. shown. But profits are largely due to a 1

7.2% increase in car sales before a change in emission standards. Investment in fixed assets rose by 5.8% in the last month

"Shadowing Game"

One of the often-mentioned measures in Beijing in recent years encouraged banks to lend to private companies. These enterprises contribute to most of the country's growth and employment, but big Chinese state-owned banks prefer to work with less-owned government-owned venture capital companies.

Wang said that many Chinese firms, especially those less well-known, can not yet receive funding, despite data showing that banks are increasing their private credit to the private sector.

Instead, a survey of more than 3,300 companies in China from the private China Beige Book showed that in the second quarter, companies reported the highest share of the loan from the so-called shadow banking sector in the survey's history.

Shadowing lending refers to unregulated funding typically provided by a non-banking organization that is subject to lesser supervision and higher.

The share of non-bank creditors for businesses has increased to 45%, compared to the last 21% in the third quarter of 2018, according to the survey.

Source: China Beige Book

"Each sector reports of jumps (at shadow funding). "According to brief information on China Beige Book activity in the second quarter. "The main source of funding for this quarter was the old hybrid lender of the type of school: state non-bank banks, which are formalized, state-sponsored intermediaries that direct loans from traditional banks to those who are otherwise too risky to be able to take borrowed from them. " 19659002] The report notes that banks have become more prone to what they give after lending to more private businesses in the first quarter. In general, companies have taken more to pay for existing costs, the report said.

More dependence on infrastructure

At the beginning of the year, analysts predicted that China is facing so many economic shocks that the government's best choice is to

These expectations remain the same, despite the stabilization in the Chinese economy in the first half of this year.

In a report by ICBC International this week, Chiang Shi Chief Economist and Research Chief and senior economist Qian Zhijun said fiscal measures would probably add to future policy measures involving construction bonds and other special government bonds.

"The role of infrastructure in support of the economy is expected to be strengthened," according to the CNBC translation of the Chinese language report.

Such development projects lead to temporary jobs and economic growth in less developed regions But it also means issuing more bonds and increasing debt dependency.

According to Wind Information, unpaid domestic government bonds have increased more than 16 times in four years – from 1.2 trillion yuan ($ 174.5 billion) in May 2015 to 19.6 trillion yuan in May 2019

In the first half of the year, China's top economic planning authority, the National Development and Reform Commission, approved 112 corporate bonds worth 364.72 billion yuan, an increase from 131 percent of a year ago, said spokeswoman Mung Wei at a press conference Tuesday. Some of the ways to use the bonds include building transport infrastructure, waste water treatment, and developing an industrial park, Mung said in Mandarin.

In June, the Chinese authorities also issued a new document encouraging local authorities and financial institutions to use special bonds and other funding measures to support major regional development projects.

It is difficult to say whether the expected increase in infrastructure bond emissions will be as big as it was a few years ago, "said Boris Kahn, vice president and senior credit officer for financing projects and infrastructure at Moody's. ;

Chinese Prime Minister Li Kecian announced in March that the economic growth target for this year is between 6% and 6.5%, slower than 6.6% in 2018.

] Back to property

] Some criticize Beijing for too fast and too sharply shifting his debt, which contributes to the slowdown in the economy and the bear. market – defined as a decline of over 20% of one-year peak – in the Shanghai composite last year.

"We expect stimulus to escalate around 4Q19 when politicians will restore economic growth as a top priority," said Larry Hu, chief economist at Macquarie, in a note Monday

. "At that time, they would reduce the interest rate percentages) in support of the real estate sector, loosened regulation to boost infrastructure spending, and introduce incentives for durable goods such as consumer and household appliances, Hu said. 19659002] Despite how high house prices have risen and China's recent efforts to limit developers from offshore funds, authorities may find it inevitable to increase support for the real estate market.

Wang said that Beijing's local debt relief efforts are more cautious when issuing bonds. The manufacturing industry is also under pressure from US trade tensions

As a result, it expects real estate market control to be "significantly relieved" in the second half of the year, especially in areas outside major cities, such as such as Beijing and Shanghai.


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