China’s total debt as a percentage of gross domestic product has fallen for the fourth straight quarter, as the government tries to strike a balance between ensuring steady economic growth and averting financial risks, according to Bloomberg.
China’s total debt as a percentage of gross domestic product (GDP) decreased from 265.4% in Q2 to 264.8% in Q3. The reason for this decline is attributed to GDP output. China’s debt also decreased, diluting the impact of China’s debt forgiveness.
According to the South China Morning Post, a government-affiliated think tank said that although China’s debt reduction campaign has improved, momentum is waning because of sluggish economic growth.
According to the National Institute of Finance and Development (NIFD), China’s debt-to-gross domestic product (GDP) ratio has fallen from 265.4% to 264.8% in the three months to the end of September. However, the 0.6 percentage point decline was slower than the 2.6 percentage point decline in the second quarter, as GDP output also declined, reducing the impact of the average rate reduction.
NIFD director Zhang Xiaojing and senior researcher Liu Lei wrote in the report that debt growth slowed. Still, economic growth was much lower than estimated, resulting in only a slight decrease in leverage.
Concerns about China’s economic slowdown
These findings underscore concerns about China’s economic slowdown, which is intensifying.
The researchers also cite other risks facing the Chinese economy, including shrinking corporate investment, debt in the real estate sector, and local government debt.
China’s economic growth decreased from 7.9% in the second quarter to 4.9% in the third quarter.
The official Manufacturers Purchasing Managers’ Index, a survey that measures the sentiment of factory owners in China, was down to 49.2 last month.
The National Bureau of Statistics said factory activity decreased for a second straight month.
Premier Li Keqiang said at a meeting on Tuesday that China’s economy was facing “new downward pressure.”
The NIFD said, while the decline in China’s overall leverage ratio is consolidating, debt growth among residential sectors, non-financial businesses, and the government has slowed to “the lowest level since the turn of the century.
The aggregate figure decreased to 9.7% from a year ago in the July-September period.
Leverage in the non-financial business sector decreases for the fifth consecutive quarter to 157.2% at the end of September, down 1.6 percentage points from the previous quarter.
But the slowdown in debt growth is due to a slowdown in new investments, as many companies choose to pay off old debt before starting to take on new debt, the report said.
The household sector’s leverage rose to 62.1% in the third quarter, up 0.1 percentage points from the previous quarter. However, the growth rate of residential consumption slowed down from 18.0% to 15.8% over the same period.
Why is China’s economic growth slowing down?
The country’s first-quarter GDP growth was 18.3%. This dropped to 7.9% in the second quarter and now to 4.9% in the third quarter, leaving growth in the January-September period at 9.8%.
A range of factors has held back the initial recovery. Concerns about the real estate sector are central. Still, government crackdowns on technology companies continued closures in the area and targeted “zero covid,” power shortages play an essential role in decreasing the economy.
The CCP also introduced limits on energy use, forcing some factories to close in September to avoid exceeding energy use targets.
While there were expectations that Beijing could relax its borrowing restrictions to free up more liquid cash into the economy, Louis Kuijs of Oxford Economics warned that “growth will slow further.”