China Inc tightens reins on debt, raises spectre of slowdown


SHANGHAI/BENGALURU: Debt growth for Chinese companies has slowed to the lowest rate in more than a decade, according to Reuters analysis, which could provide relief for policymakers worried about the fallout from years of loose lending practices across the economy.

But this growing caution about taking on new debt, along with tighter profit margins and slowing revenue growth, could point to rising risks facing the world’s second largest economy amid fears of a slowing growth.

The overall debt levels of Chinese companies grew three per cent in the first quarter of this year, according to analysis by Reuters of 1,843 firms listed in Shanghai and Shenzhen, the slowest pace in at least 13 years.

Combined total debts – including borrowing via loans and bond issuances – amounted to 13.2 trillion yuan (US$2.1 trillion) at the end of March, the slowest pace of growth year-on-year since at least 2005, the analysis showed.

That amount was down 6.2 per cent from the fourth quarter, a steep drop after companies ramped up leverage during 2017.

Revenue growth, meanwhile, more than halved to 12.3 per cent in the first three months of 2018 from 26.7 per cent a year ago.

Net profit margins were also squeezed to their lowest level in two years, with sectors like information technology particularly hard hit.

“What it says to me is that many of these companies are quite cautious in terms of expansion and taking on new debt,” said Christopher Lee, Hong Kong-based managing director for corporate ratings at S&P Global, referring to the data.

“The side effects will be slower industrial growth and slower GDP growth than what was achieved in 2017,” he added.

The signs of slowing revenue growth in the Reuters analysis adds to a series of data pointing to vulnerabilities in China’s economy, even as policymakers try to navigate debt risks and defuse a trade row with the United States.

Despite stronger-than-expected first-quarter economic growth, economists polled by Reuters still expect a gradual slowdown to around 6.5 per cent this year from 6.9 per cent in 2017, as rising borrowing costs weigh on consumption and investment.

China saw fixed asset investment grow at its slowest rate since 1999 in April, while retail sales growth hit a four-month low. Home sales have also slowed as the government tightens controls in order to fight speculation and tame property prices. — Reuters