Premier Li Keqiang pointed out in the "two sessions" government work report that as one of the three major battles, the major risks of preventing and defusing have achieved effective results. In 2018, the macro leverage ratio was relatively stable and the financial operation has been generally stable. At the same time, in this year's macro policy, financial structural de-leveraging is still an important aspect of risk reduction, and it is also a focus of the world on the China's economy.
Financially speaking, China's debt or macro leveraging problem has been a concern of the world in recent years. China's local debt has caused criticism due to the issue of transparency and implicit liabilities. But this is far from the case, as local debt does not make up the whole problem of debt. According to data from the Academy of Social Sciences, in 2018, the total leverage ratio of China's real economy sector was 243.7%. Among them, the leverage ratio of residents was 53.2%, the leverage ratio of enterprises was 153.6% and the leverage ratio of government was 37%. Among the enterprise leverage ratio, the leverage ratio of state-owned enterprises was 103%, including the debts from financing platforms that should be recorded in the financing of local governments. In that case, the public sector leverage ratio, which includes state-owned enterprises and the government, totaled 139.8%, accounting for nearly 60% of the total debt of the real economy. Zhang Xiaojing, the deputy director of the Institute of Economics Chinese Academy of Social Sciences, also said that China's macro leverage ratio fell for the first time in 2018. The macro leverage ratio was down 0.3 percentage points from the previous year and it was mainly due to the decline in corporate leverage, in which private enterprises made the great contributions. However, the proportion of state-owned enterprise debt to corporate sector debt is still rising, from 57% in 2015 to 67% in 2018. Therefore, the implementation of structural deleveraging policy should take into account not only the debts of local governments, but also the debts of state-owned enterprises that are closely related to them.
At the same time, it should be noted that household leverage has also grown rapidly in recent years, from 48.4% in 2017 to 53.2% at the end of 2018, exceeding the nominal growth rate of 8.7% of household income. Looking from the perspective of the total amount, household debt is about RMB 47.7 trillion, which has already exceeded the total disposable income figure of about RMB 40 trillion. The high level of household leverage is also a major hidden danger, which will have a negative impact on consumption and is also a factor contributing to the current decline in consumption growth. The International Monetary Fund's Global Financial Stability Report, released in 2017, pointed out that when the household sector's leverage is below 10%, the increase in country's debt will be conducive to economic growth. On the contrary, when the household sector's leverage is above 30%, the country's medium-term economic growth will be affected. Lastly, when the household sector's leverage exceeds 65%, it will affect financial stability. Guo Shuqing, Chairman of the China Banking Regulatory Commission, also stated recently that the goal of structural de-leveraging is to significantly reduce the corporate leverage ratio, and to stabilize the household leverage ratio.
Moreover, Chan Kung, Chief Researcher of ANBOUND, proposed that In addition to the current financial statistics, China's debt problem should be considered from the perspective of the entire economy and society. As he has always believed, financial analysis should be based on big financial problems, and not just on small accounts. He believes that when someone talks about invisible debt, the amount of the debt is staggering. In fact, the more obscure things are, the more data there are, which is a common phenomenon. As for the debt problem, it still needs more understanding from the structural perspective. This is not only the debt reflected by the financial industry, but also more implicit political debts.
How much implicit debt does China still have? Chan Kung believes that it should be considered from several aspects:
1. The great maintenance fees of large-scale infrastructure construction will become greater along with the inflation in the future. Without maintenance, it will turn to garbage or cost debt.
2. The great environmental debt caused by over development, without expenditures on environmental protection. The environment will be vulnerable to human activities, and the polluted environment will in turn affect people's daily lives.
3. The "population debt". China's aging population has brought increasing pensionary burden to the society. As the rise of social costs, so does the population debt.
4. Inventory debt. Overproduction is a big problem in China, but it has never been known. No matter how much we produce, the overstocking of our products in warehouses are actually incur costs which can turn into debt. The stronger of current stimulus policy is, the higher the debt will be.
5. Medical insurance debt, which is now a black hole, is like "Robbing Peter to pay Paul". Medical insurance debt will become greater and more prominent, especially when the economic growth slows.
6. Urban debt. China's urbanization is extremely fast, but the shortcoming is prominent. It needs money to improve and maintain. The greater the size of the city, the greater the cost of said improvements and maintenance.
7. Reforming debt. There are many problems of unbalanced development in the society and industry. These are structural problems, and all of them require money to invest, which are actually translates to debt.
In general, Chan Kung believes that China's debt cannot be measured by numbers. From the perspective of the overall situation and structure, there are a lot of policy debts that have not been adjusted as they should be; they should never be ignored and be left unsolved. From the perspective of preventing and defusing major risks, to solve China's debt problem, we need to repay not only financial debt, but also policy debt. Chen Gong believes: "The holes that are caused by policy will often in the form of debt. It is just a matter of time."
Final Analysis Conclusion:
Up to now, China's debt puzzles is not only a matter of calculating figures, but also the accumulation of long-term structural problems. We should not only rely on administrative "financial structural de-leveraging", but also on policy adjustment and further reform to alleviate various "political levers". But at the end of the day, this is more a matter of development.
