Economy May 13

China businesses go further into debt

Macro leverage ratio surges amid coronavirus stimulus and as social funding soars

by Nadeem Xu
China indebtedness surges

(ATF) Indebtedness among Chinese companies rose in the first quarter as the country stepped up credit support to mitigate the impact of the coronavirus outbreak, the central bank said Tuesday.

Since 2017, the macro leverage ratio has remained generally stable, with a decline seen in 2018 and a mild increase registered last year. But the ratio has climbed notably in the first quarter, affected by the coronavirus epidemic, the People's Bank of China (PBOC) said in an online statement.

The rise in leverage is a result of counter-cyclical policies aimed at supporting the resumption of work by companies, the statement said, adding that the increase is only temporary and will eventually trend down after companies get operations back to full capacity.

The outstanding amount of China’s social financing grew 12% at the end of April, the highest level since June 2018, after the country launched measures to encourage direct financing and the issuance of government bonds earlier this year.

Social financing, a measurement of funds that individuals and non-financial firms receive from the financial system, increased significantly as financial institutions offered more loans to corporates while more companies were allowed to raise funds by issuing bonds and equity shares, said the PBoC. 

In the first four months of this year, a total of 2.68 trillion yuan of corporate bonds was issued, which was the equivalent to 80% of the total amount in the full year of 2019.

Government bond issuance totaled 1.91 trillion yuan in the first four months, an increase of 524.6 trillion yuan, or 38.87%, from the same period last year.

The latest central bank data showed that China's new yuan-denominated loanscontinued to climb in April, hitting 1.7 trillion yuan ($240 billion) last month. The M2, a broad measure of money supply that covers cash in circulation and all deposits, rose 11% year-on-year in April, 1 percentage point higher than the end of March and 2.6 percentage points higher than a year ago, showing the effect of monetary policies, the PBOC said.

By the end of April, outstanding social financing, a measurement of funds that individuals and non-financial firms receive from the financial system, increased by 12 % year on year to the highest level since June 2018, the PBOC data showed.