The deleveraging process in China is “progressing relatively slowly thus far” according to a report titled “Deleveraging, Destocking and Rebalancing”, authored by Hang Seng Bank acting chief economist Thomas Shik.
The report notes that it has been more than six years since the growth rates of money supply and loans hit their historic peaks and that the speed of GDP expansion has slowed sharply from its 2010-11 high.
In November 2009, outstanding loans stood at 33.9 percent compared with 15.3 percent today, while real GDP has declined from 12.2 percent in the first quarter of 2010 to 6.8 percent today.
But there has been little progress with deleveraging. The stock of total social financing (a measure of outstanding credit in the non-financial sector) has continued to rise and in January 2016 stood at over RMB141 billion – equivalent to 209 percent of GDP.
Data included in the report from the China Banking Regulatory Commission (CBRC) shows that the non-performing loan ratio at commercial banks rose to its highest level since 2009 in the fourth quarter of last year, albeit at a still reasonably low level of 1.67 percent.
However the so-called ‘special mention’ loan ratio, which refers to the proportion of loans that may turn bad or are showing signs of prepayment risk, is higher at 3.79 percent.
The report says that weaker investment growth may remain a drag on the rate of economic expansion in the coming year and forecasts GDP growth of 6.7 percent for 2016 compared with 6.9 percent in 2015.
Policy makers are attempting to transition China to a new economic model relying more on consumption and services and less on investment and exports.