China debt ratio hits record but pace of borrowing eases
borrowing at a slow pace, reflecting low confidence that's hitting economic growth. Total debt combining the household, corporate and government sectors climbed to 281.5% of gross domestic product in the second quarter, according to Bloomberg's calculations based on data from China's central bank and the National Bureau of Statistics. That was up from 279.7% in the first quarter.
The data suggest China isn't experiencing a classic «balance sheet recession,» typified by a reduction in corporate and household leverage hitting the economy. But economists argue that slower borrowing growth will put pressure on GDP growth, a somewhat similar process. China's National Institution for Finance And Development, a government-linked think tank in Beijing, estimated an increase in the total debt, or macro-leverage ratio, to 283.9% in the second quarter, according to a report released on Tuesday.
However, it pointed out that household debt is rising at half the average rate seen over the past two decades. Corporates are unsure about future economic growth prospects and so have entered «wait and see mode,» it added. The figures will add to the debate over whether China is entering a «balance sheet recession,» as argued by Richard Koo, chief economist at the Nomura Research Institute.
He said last month that China was seeing a pattern similar to what caused Japan's economic stagnation in the 1990s. His theory is that a sharp fall in asset prices leads the private sector to focus on reducing their leverage by paying down debt, which drives down consumption and investment. While overall debt in China isn't contracting, the slowdown means households are becoming more concerned about repairing their balance sheets than they used to be, and
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