More dizzying numbers


Real estate investment in 2017 was close to Rmb11tn, up 7 per cent compared to 6.9 per cent in 2016, according to the National Bureau of Statistics. The average house price by the end of 2017, according to Wind, was Rmb13,967 per square metre, 7.15 per cent up year-on-year but far below the 2016’s growth rate of 19 per cent. Housing sales grew by 13.7 per cent year-on-year, much slower than 2016’s 34.8 per cent. Such statistics suggest not a downward spiral but a managed slowdown.

According to the IMF, China’s debt-to-GDP ratio—borrowing by governments, non-financial companies, and households from both banks and bond markets— rose to about 254 per cent in 2016, with the government debt ratio at 44 per cent, the household ratio at 44 per cent and non-financial companies’ ratio at 165 per cent. However, if the national savings ratio of about 46 per cent (with corporates at 17 per cent, the government at 6 per cent and households at 23 per cent) is taken into account, the overall debt serviceability is acceptable although not healthily sustainable.

As for the financial system’s increasing leverage — brought about in particular through the issuance of off-balance-sheet wealth management products or inter-bank transactions — a resolution to this gigantic mess needs to be achieved over the long-run.

According to the Bank for International Settlements (BIS), the size of the outstanding shadow savings instruments in 2016 stood around 77 per cent of GDP or Rmb57.3tn (which is broken down into wealth management products at Rmb23.1tn, trust products at Rmb20.2tn, entrusted loans at Rmb13.2tn and P2P loans at Rmb0.8tn). No matter which aspect of the shadow finance problem is tackled first by regulators, there is an official consensus that this problem will take time to resolve.

Nevertheless, when compared to the overall size of China’s financial system, an inherent resilience becomes clear. Total financial assets of Rmb307tn (broken down into Rmb59tn in equity, Rmb75tn in bonds and Rmb173tn in deposits, according to Wind) provide an ample buffer as regulators tighten curbs around these lightly-regulated products.

How about non-performing assets, the old Achilles heel? According to CEIC, non-performing loans (NPL) account for 1.74 per cent of a total Rmb1.7tn in lending. Some China watchers may doubt the truthfulness of the NPL ratio itself. However, the financial institutions’ profit accumulation and ongoing reinforcement of their capital base can without doubt prevent old troubles from turning into new mistakes.

The author is on the executive committee of this, so grain of salt please. Having said that, China isn’t California.

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