Chinese debt levels continue to rise

The People's Bank of China reports that its broad measure of private-sector borrowing (total social financing or TSF) rose by 13 % y-o-y in October. Growth has continued at roughly the same pace over the past three years. 70 % of the total credit stock now consists of bank loans, 15 % of shadow-banking sector credit (trust loans, entrusted loans and bank bills) and 15 % as corporate bonds and equities. Flows of credit via the shadow-banking sector have witnessed a sharp increase this year, with the stock of shadow-banking credit up 19 % y-o-y in October. In contrast, growth in corporate bond issues slowed to 5 % y-o-y as interest rates on bond markets have risen and the costs of bond financing for firms has increased.

Chinese indebtedness has caught global attention as such rapid increases in debt have earlier ended in financial crisis in many countries. Even China's own leaders have begun to stress the need to rein in or mitigate financial market risks and do something about the current debt craze. While the growth in credit overall has remained stable, China's nominal GDP growth has accelerated with the pick-up in price inflation. This trend has significantly slowed growth in the debt-to-GDP ratio. The PBoC's TSF measure suggests that the debt-to-GDP ratio fell slightly in the second and third quarters. Seasonal variation in the total credit stock, however, is quite large. When seasonal swings are taken into consideration, the debt-to-GDP ratio is likely rising.

Figures from the Bank for International Settlements (BIS) show that the structure of Chinese debt has shifted slightly. The ratio of corporate debt to GDP has seen a marginal decline, while indebtedness of households and the public sector has increased rapidly. The BIS reports that China's debt-to-GDP ratio was 258 % at the end of March.