MOF: China Govt Can Add More Debt

Bloomberg: China Says It Has Room to Increase Debt to Boost Economic Growth
China’s government still has room to borrow more to finance the investment and construction that’s needed to shore up economic growth, the Ministry of Finance said.

Overall risks associated with government debt, which amounted to 26.66 trillion yuan ($4.1 trillion) at the end of last year, are under control, the ministry said in a statement on Thursday. The government can add leverage gradually because its debt ratio is still below international warning levels, it said.

While concerns over China’s debt have shaken investor confidence, the ratio of government borrowings to gross domestic product is low by global standards -- 39.4 percent, according to the finance ministry. The ratio just for the country’s cash-strapped local governments, meanwhile, was at 89.2 percent and China is accelerating debt-for-bond swaps for those administrations to ease the burden of repayments.
Once it gets to this point, total credit is the proper measure. The government has room to monetize debt, but if it adds a lot of credit fueled growth and total debt to GDP keeps rising, it's only setting up the economy for more pain later.

No comments:

Post a Comment