Officials urge enhanced efforts to cut leverage after 'stable, sound' H1 performance
Chinese officials on Thursday indicated that the country is willing to put containing what they described as persistent risks in the economy ahead of maintaining short-term economic growth.
At a news briefing in Beijing, officials from various agencies of the central government said that the Chinese economy achieved better-than-expected performance in the first half of 2017, but there are still problems that require enhanced efforts during the rest of the year to prevent systematic risks.
Problems such as local government debt, credit defaults at some State-owned enterprises (SOEs) and high leverage ratios, if not dealt with early, could lead to systematic risks and cause serious damage to the Chinese economy, Yang Weimin, deputy head of the Office of the Central Leading Group on Finance and Economic Affairs, told the briefing.
Sacrifice vs gain
"Therefore, even if it means making a little sacrifice in some other areas, we still need to better manage the relationship between stabilizing growth and preventing risks," Yang added.
Wang Zhijun, another official at the Office of the Central Leading Group on Finance and Economic Affairs, which is chaired by President Xi Jinping, added that China needs to remain vigilant about both "black swan" and "grey rhino" risks.
"Black swan" indicates unexpected events or problems, while "grey rhino" means obvious major problems that have been ignored, Wang explained. Both black swan and grey rhino incidents could lead to a financial crisis, he said.
"Especially under the current circumstance where the foundation for economic growth is still firm, we must enhance our sense of urgency and risk," Wang said. He added that China must enhance its "sense of crisis" about "grey rhino" problems such as shadow banking, a housing bubble and high leverage ratios.
Yang said that China will focus on reducing leverage, especially at SOEs, because this will reduce leverage for the whole economy, therefore preventing risks at their origin. "We can't let leverage ratios continue to rise just for maintaining growth," he said.
Debt has emerged as one of China's biggest challenges, with China's total private and public debt exceeding 250 percent of GDP, up from 150 percent before the global financial crisis, according to the Organisation for Economic Cooperation and Development (OECD).
China's corporate debt is about 175 percent of GDP, one of the highest ratios in emerging market economies, according to the OECD, with SOEs accounting for around 75 percent of that, according to a Reuters report.
Stable and sound
Cutting leverage and maintaining growth can be achieved at the same time, Yang said, pointing to the performance in the first half of 2017.
"In the first half of the year, the economy remained stable and sound, while a trend of rising leverage experienced in the last few years has been contained to some extent," Yang said.
The world's second-largest economy grew 6.9 percent year-on-year in the first half of 2017, accelerating 0.2 percentage points compared to the same period last year, well above the 6.5 percent growth rate target the government set for the whole year.
Cong Liang, director of the General Office of the National Development and Reform Commission, said a fast-growing services sector and robust consumption helped.
He said at the briefing that the services sector grew 7.7 percent year-on-year in the first half of the year, while consumption grew 10.4 percent during the period, Cong said.
Structural improvements might have also helped the economy, according to Niu Li, director of the Macroeconomic Research Office at the State Information Center.
"New forms of business are fast developing, traditional industry is transforming toward the middle- and high-end, and about 46 percent of investment is put into technological upgrades," Niu told the Global Times Thursday.
The better-than-expected performance in the first half of the year might give officials some leeway to focus on containing risks, said Wang Jun, a deputy director of the Department of Information at the China Center for International Economic Exchanges.
"Currently, to tackle and mitigate financial risks and improve the quality of economic growth are more urgent and deserve more attention, because the nation is poised to achieve the targeted annual GDP growth rate," Wang said.
However, he added that the pace of tackling these problems should be steady, to prevent scenarios in which rash actions in reducing risks cause new risks.
He said there is a balance to be achieved between stabilizing economic growth and controling risks.