The Controllable Problem Of China'S High Debt Risk Has Attracted Much Attention.

The debate over whether China's debt risk is controllable has been going on for several years.

Pessimists have always believed that China's high leverage ratio is unsustainable, and it is a precursor of crisis. As a few years ago, there was a view that China would usher in "Minsky moment". Recently, international rating agencies have gradually lowered China's sovereign debt rating, and hedge funds have increased short of China; while those who hold the opposite view believe that although Chinese debt has some risks, the main reason is that the leverage ratio of enterprises is too high, which is a structural problem, and China's uniqueness makes international standards not fully applicable, and China's debt risk is overall controllable.

How serious is China's debt problem? Is it "easy to sleep" or "precarious"? How to guard against China's debt risk? Obviously, it is an important topic that puzzles policy makers and market participants.

At this year's China Development Summit Forum, there are also many discussions about China's debt risk and the fierce collision of views. The discussions on the above issues are more dialectical and in-depth. Through summarizing and analyzing some of the views, the author tries to clarify the train of thought and provide useful suggestions for resolving China's debt risk.

First of all, is there any debt risk in China? Where does it mainly lie? The balance sheet of the Li Yang team of the Chinese Academy of Social Sciences shows that although China's debt is overall controllable, there are still some risks, which are mainly reflected in the following aspects: first, the overall debt growth is too fast.

In the 2008-2014 years, the proportion of China's total debt to GDP rose from 170% to 235.7%, and 65.7 percentage points increased in 6 years.

Excluding financial institutions, the proportion of China's real sector debt to GDP rose from 157% in 2008 to 217.3% in 2014.

It can be said that no matter what caliber is taken, China's leverage rate is too fast to be avoided, and we must remain vigilant.

Two, the leverage ratio of the non-financial sector is too high.

Before 2008, the leverage ratio of non-financial enterprises in China remained stable within 100%. After the global financial crisis, the leverage trend was very obvious. The leverage ratio of non-financial enterprises rose from 98% in 2008 to 149.1% in 2014, and the leverage rate of local government financing platform was deducted to 123.1%, which was higher than that of the United States, Britain, Germany and Japan.

In addition, IMF, published in August 2015, in China's annual fourth article fourth consultations report (2015 ARTICLE IVCONSULTATION), proposed that both the total amount of Chinese social financing and the amount of private sector credit increased too fast since the crisis, and the credit /GDP has exceeded the BIS credit gap (creditgap) and is in high position in the international comparison.

In addition, IMF warned that whether China's debt risk is controllable in the future is whether it can carry out reforms so that the economy will maintain rapid growth in the next five years. IMF believes that if the reform is not carried out, China's economic growth rate will drop to around 5% in 2020, and the debt rate will increase significantly.

For the above fact that China's debt growth is too fast, the debt of non-financial enterprises is too high, and the downward trend of growth will aggravate the burden of debt, the basic keynote of China's policy-making layer is that the overall debt risk is controllable.

For example, at last year's central economic work conference, deleveraging was one of the five major tasks of economic work in 2016. Zhang Gaoli, vice premier of China, mentioned in his previous keynote speech on China's development summit that we should guard against financial risks, especially for possible stock market, foreign exchange market, bond market and property market risks. We should attach great importance to preventing cross infection.

Zhou Xiaochuan, governor of the Central Bank of China, admitted at the China Development Summit that there is a high risk of high debt in Chinese enterprises. It is believed that the development of capital market in 13th Five-Year should be strengthened and the dependence of enterprises on borrowing and leveraging should be greatly reduced. Wu Xiaoling, deputy director of the finance and Economic Commission of the National People's Congress, put forward that China's overall debt rate is not serious, but the debt of enterprises is rather high. The risk is not great after structural optimization. Wang Zhaoxing, vice chairman of the China Banking Regulatory Commission, said that China's financial risks are controllable, and the current coverage rate has exceeded 180%, which can cover bad loans.

The banking capital adequacy ratio has reached over 13%, and it has the ability to resist possible risks.

In short, overall, China's policymakers are cautiously optimistic about the risk of debt.

However, Martin Wolf, chief financial commentator of the financial times, rebutted the view that China's debt was not bad.

He pointed out that before the outbreak of the crisis, policymakers often thought that there was no problem. For example, the Bank of England had reported its balance sheet well before encountering the worst financial crisis in 300 years, but the crisis often broke out in neglect.

Martin Wolf's statement is not false, but it is regrettable that it fails to give more details on the key issues, namely, how to identify the crisis, what is the fuse to detonate the crisis, and how to conduct the crisis, and the amount of information is still limited.

After all, in the past five years, several popular Chinese crisis theories, such as shadow

The local government debt crisis and the real estate market crisis have been mentioned but have never been verified.

From this perspective, it is probably a more pragmatic approach to avoid the outbreak of China's debt crisis by making clear the logical relationship of these problems, objectively analyzing the favorable and unfavorable conditions that China resists the debt crisis, and highly guarding against possible triggers.

In my view, China, as a whole, still has favorable conditions to prevent the outbreak of debt crisis.

First, China's economic growth potential is still huge. Service industry and consumption are new growth points of China's economy.

It can be seen that the main debt crisis is state-owned enterprises and traditional industries. However, China has shown signs of pformation. Last year, the service sector accounted for 50.5% of GDP, and for the first time, the contribution rate of consumption to GDP was 66.4%.

Against this background, if China's new supply reform continues to advance in the future, especially the deepening of the reform of state-owned enterprises, China's economic pformation will help to support economic growth and ease debt disputes in the process of growth.

Second, the relatively high leverage ratio in China is related to specific background factors and can be alleviated through accelerated reform.

President Zhou Xiaochuan listed the historical reasons for the high debt rate in China at the Development Summit Forum, such as the high savings rate of Chinese nationals, the late development of the equity market and the relatively low wealth of the people.

At the same time, it is not difficult to find that the current debt problem in China is mainly concentrated on corporate debt and local government debt.

In view of the high debt of enterprises, it can help to alleviate the debt through equity swap and the development of capital market. On the one hand, the local government debt can be replaced by the central government debt and the fiscal and taxation reform should be accelerated.

Third, China's debt is mainly domestic debt, and there is not a large amount of foreign debt.

At the development forum, Li Jiange, vice chairman of Huijin Company, had been very interested in Martin Wolf's question. He raised why overseas is so worried about China's debt situation, but Japan's debt data is higher than that of China. The proportion of public debt only accounts for 250% of GDP, nor has it been short. In fact, in my view, the Sino Japanese debt problem is worth vigilant, but there is a key factor that has not seen a crisis. The two factors are mainly domestic debts. There is a clear difference between the debt crisis countries and the overseas debt situation.

Fourth,

The government has successful experience in resolving crises.

The development of high-level forum, bridge water fund CEO Dario's view is very unique.

He believes that the debt crisis facing China at the beginning of this century is far more serious than the present, and the main executives who help China overcome the difficulties are still in the position. I believe that with their experience in dealing with crises, China's debt crisis will not happen.

In addition, unlike the developed economies such as Europe, America and Japan, the Chinese government can often use state resources rapidly when the crisis occurs, such as releasing liquidity, reducing the possibility of debt risk arising from lack of liquidity.

In summary, the author believes that the current debt problem in China is not a precursor of crisis. China's economic growth potential and China's successful experience in handling crises will lay the foundation for avoiding a deeper debt crisis.

But the overconfidence attitude is not good enough to deal with the excessive growth of corporate debt.

Therefore, a more rational way is to face the problem directly, increase the sense of crisis, and increase the reform measures to defuse debt risks, so as to resolve the crisis in a cradle.

In my opinion, how to deal with the following key issues in order to avoid triggering the debt crisis is very important:

First, do not neglect systematicness.

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In my view, the risk in the financial field is easy to pmit each other. As Vice Premier Zhang Gaoli said, we should pay attention to preventing systemic financial risks, especially preventing cross infection in exchange market, bond market, stock market and property market risk.

In view of the favorable background of the convening of the G20 conference in China and the formal accession to the SDR of the RMB in this year, the negative impact of the RMB's one-off sharp depreciation and the reopening of capital control strategy is greater. It is necessary to maintain the exchange rate stabilization period at present. To deal with the risks of the property market, we must prevent the excessive rise of housing prices in the second tier cities caused by the three or four line cities' inventory targets and prevent a new round of real estate bubbles.

Second, we should effectively push forward the supply side reform and pay attention to the coordination of reform.

Many doubt that China's debt crisis is about to erupt stems from the slow progress of China's reform.

It can be seen that since the third Plenary Session of the 18th CPC Central Committee, China's reform documents have been continuously promulgated, but the policy is not in harmony, and the situation of reform is going back.

For example, in 2015, because of the economic downturn and the tight local finance, the drastic fiscal and tax reform took the excessive measures to expand the local government debt. The anticipated reform of state-owned enterprises emphasized the market-oriented operation of state-owned enterprises, and emphasized the salary limits of executives, and the strengthening and enlargement of state-owned enterprises.

In terms of financial reform, registration system is also facing delays in capital market fluctuations.

In addition, one of the best ways to resolve debt is debt to equity swap, but as the author mentioned in the article, "capacity should not be confined to state-owned enterprises," although debt to equity swap can play a theoretical role, there are still limitations in the slow progress of reform of state-owned enterprises.

As for the board members of the integrated state-owned enterprises, under the existing system, the administrative level is likely to be lower than those of the managers who need to be rescued. Under such circumstances, how to fulfill their responsibilities for corporate governance supervision is doubtful.

Therefore, we must speed up the reform of state-owned enterprises and coordinate efforts from the supply side so as to fundamentally solve the problem.

Third, pay attention to the improvement of financial regulatory coordination.

In recent years, the Chinese government has questioned the ability of economic management.

For example, last year's 811 exchange reform and the beginning of the year, China's exchange rate market suffered a sharp fluctuation, which was closely related to the poor communication between the policymakers and the market at that time, resulting in the market expectation chaos. After that, foreign exchange reserves declined sharply. Finally, capital controls had to be tightened to prevent emptiness. Moreover, last year's stock market crash, the shortage of money a few years ago, and the P2P risk that has erupted repeatedly, also showed that regulators' ability to guard against the financial crisis needs to be strengthened.

From this perspective, the reform of the current financial regulatory framework should be enhanced to a strategic level so as to avoid the emergence of systemic financial risks.

Of course, how to reform is still under heated discussion.

In my view, it is necessary to set up a higher level of financial coordination and supervision as soon as possible in the former column, whether it is a super central bank or not. As soon as possible, we can build consensus and change the situation of three parties going to war on their own. It is necessary to adapt to the era of mixed operation. After all, this is very urgent for the outbreak of systemic crisis.