China surpasses US as world’s top corporate borrower; Will the IMF headquarters move to Beijing?


Corporate debts_Eurozone_US_China

 

The Chinese mainland has surpassed the US as the world’s top corporate borrower, and higher debt risk in the world’s second-largest economy may mean greater risk for the world, a report said on Monday.

However, Chinese economists noted that the debt risk in China’s corporate sector is still well under control.

Nonfinancial corporate debt in the Chinese market was estimated at around $14.2 trillion by the end of 2013, overtaking the $13.1 trillion debt owed by the US corporations, a progress happening sooner than expected, said a report from the Standard & Poor’s Ratings Services on Monday.

The report expects that by the end of 2018 debt needs of mainland companies will reach $23.9 trillion – around one-third of the almost $60 trillion of global refinancing and new debt needs.

“It [the mainland surpassing the US as the largest corporate borrower] is not surprising at all, as the [size of] mainland non-service sector has already surpassed that of the US,” Tian Yun, an economist with the China Society of Macroeconomics under the National Development and Reform Commission, told the Global Times on Monday.

Cash flow and leverage at mainland corporations has worsened after 2009, and debt risks in the property and steel sectors remain a particular concern, the report said.

Private companies are facing more challenging financing conditions – highlighted by China’s first corporate bond default case of Shanghai Chaori Solar Energy Science and Technology Co in March and another case of default of leading private steel maker Shanxi Haixin Iron and Steel Group.

“The capital market has been sluggish during the past few years, leading to the fast growth in corporate debts,” Xu Hongcai, director of the Department of Information under the China Center for International Economic Exchanges, told the Global Times Monday.

Experts noted that the rapid growth in debt reflected some problems of the  Chinese economy, but the size of the debt is still in a safe range and will not cause major risks as the economy remains stable.

“The problems of the Chinese economy are institutional and structural,” Tian said, “By addressing these issues, debt risks can be managed.”

Tian further noted that most corporate debts in China are internal debts, thus debt problems in the country will have limited impact on the rest of the world.

The report also said a possible contraction in “shadowing banking” will be detrimental to businesses as general.

But Xu noted that China’s tighter supervision of the “shadow banking” sector will make it more transparent and better-regulated, which will reduce the potential risks in the sector.

Local governments face massive debt repayment pressure

China’s local governments are facing huge debt repayment pressure this year with 2.4 trillion yuan ($390 billion) of debts due in 2014, China Business News reported Monday.

From 2009 to 2013, China issued 94 local government bonds raising 850 billion yuan, the report said.

With another 400 billion yuan worth of bonds to be issued this year, the total financing since 2009 will reach 1.25 trillion yuan, according to the report.

However, the total local government debt is much higher than the amount raised through the bonds, the report said, noting that major debt came from bank loans.

Although the central government has stated several times that the overall debt risk is under control, the statistics from China’s National Audit Office show that some local governments have a debt-asset ratio of more that 100 percent and are facing huge repayment pressure, the report said.

Market analysts hold the view that local governments may borrow new debts to pay for the old ones.

The central government allowed local authorities to raise funds since 2009 in the wake of the global financial crisis, while the central government also issued bonds and repaid debts on behalf of the local governments, a practice criticized by some as not conforming to market economy principles.

As the bond issuing backed by the central government is limited and could not fully meet the local needs, the local governments also turned to opaque financing channels including shadow banking activities, the report said.

Despite the big debt pileup, no local government default has so far taken place.

– By Liang Fei Source:Global Times Published: 2014-6-16 23:43:09

 

Will the IMF headquarters move to Beijing?

 

The International Monetary Fund’s headquarters may one day move from Washington to Beijing, aligning with China’s growing influence in the world economy, the fund’s managing director Christine Lagarde said early this month.

Attaching importance to China

Christine Lagarde made the statement at the London School of Economics and Political Science (LSE), saying that the IMF rules require that the institution should be headquartered in the country that is the biggest shareholder. This has always been the U.S. since the fund was formed.

“But the way things are going, I wouldn’t be surprised if one of these days, the IMF was headquartered in Beijing,” she said.

Lagarde remarked that the IMF had a good relationship with China, the world’s second largest economy, and she praised the Chinese government’s commitment to fighting corruption.

Lagarde added that she did not think the IMF should be controlled by Europeans in its first place. Since its establishment in 1945, the IMF headquarters has been headed by Europeans and located in Washington, while the World Bank has been headed by the Americans.

Not satisfied with the U.S.

Lagarde also pointed out that the U.S. government is an “outlier” among the G20 in refusing to approve IMF reform, and the IMF was trying to give emerging economies like China and Brazil a bigger voice through reform.

According to Lagarde, on the part of countries like China, Brazil, and India, there is frustration with the lack of progress in reforming the IMF by refusing to adopt the quota reform that would give emerging economies a bigger voice, a bigger vote, and a bigger share in the institution. “I share that frustration immensely,” she said.

She also claimed that the credibility and the importance of the IMF are closely related to proper representation among the membership. “We cannot have proper representation of the membership if China has a tiny share of quota and the voice, when it has grown to where it has grown,” she said.

The IMF agreed to reform its management structure in 2010 so that emerging economies could play a bigger role, and made China the third largest member. The U.S. is the only member with control weight in the voting; meaning that any major reform must be approved by the United States.

Hello headquarters

Lagarde has no specific schedule for the headquarters’ shift. However, this once again reminds China that there are few international organizations headquartered in its country, which is disproportionate to China’s status as the world’s second largest economy.

This article is edited and translated from 《IMF总部要搬北京?》,source:Beijing Youth Daily, author: Bu Xiaoming. (People’s Daily Online)

Related:

China Inc borrows $14 trillion, overtakes US as top corporate bond: S&P

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