China targets debt risks, but does it mean business?

China has launched perhaps its most concerted push yet to clean up a toxic brew of unregulated and risky lending increasingly viewed as a threat to global financial stability, but do authorities really mean business this time? Analysts don’t think so.
China’s addiction to debt-fuelled growth powers the steady economic expansion that the ruling Communist Party craves, and it won’t go cold turkey, they said.
“These things come in waves.
It’s like ‘well, this time we mean it.’ But to be blunt, I would fully expect them to essentially retreat,” said Beijing University economics professor Christopher Balding.
“At the end of the day, economic growth is the priority.”
Fears are mounting that China is flirting with a potential disaster worse than the US subprime collapse and subsequent 2008 financial crisis, and Japan’s 1990s asset-bubble meltdown and resulting “lost decade.”
The numbers are staggering.
Moody’s Investor’s Service estimated in October that China’s “shadow banking” sector — off-balance-sheet lending that evades official risk supervision — totalled $8.5 trillion, or nearly 80 per cent of its GDP.
It surged by an additional $297 billion in the first quarter of 2017, according to a Bloomberg analysis.
A poorly regulated asset-management industry that has funnelled cash into risky investments tripled in size in just three years to reach $3.8 trillion last year, according to various estimates.
China had overall debt liabilities equal to 264 per cent of GDP in 2016, Bloomberg Intelligence said, yet lending is chugging ahead despite fears of a bubble in the crucial housing sector.
The situation has reached “a level of absurdity in China that the planet has never seen,” said Anne Stevenson-Yang, Research Director at J Capital in Beijing.
Without aggressive action, “the top one per cent will be multi-billionaires and the rest of the country will be squatting in empty buildings by trash fires and foraging for food”.
The IMF warned this month that Chinese debt crisis could “imperil global financial stability”.
China has vowed to clean house.
New banking regulator Guo Shuqing, installed in March, has issued what official Xinhua news agency called a “regulatory windstorm” of directives this month.
They include measures to strengthen institutional transparency and chronically weak internal controls, tighten balance sheets, halt risky lending, and dispose of bad loans.
Big fines have been meted out and corporate figures arrested.
— Reuters