11-30-2016, 04:12 AM
Winter has come to Beijing, but the Chinese industrial sector is getting warmer—and less indebted. Much of the improvement, however, is tied to the rise in commodity prices, which is relieving pressure on benighted coal and steel producers. If the rally falters next year along with the housing market, financial problems are likely to re-emerge... Yet industry as a whole showed scant progress on deleveraging. Liabilities as a portion of assets were down just 0.2 percentage point from September and 0.7 point from a year earlier, to 56.1%. So the good news is that corporate China’s balance sheet has improved. The bad news is that much of this improvement is tied to the credit-fueled housing and commodity price rally, which will run out of steam before too long.
China’s Debt-Laden Companies Take a Load Off—for Now - WSJ
International credit-rating agencies have been warning about the danger of a Chinese banking crisis for quite some time. Recently, Fitch Ratings warned that China’s bad loans in the banking system might be 10 times the official estimates of 1.8% of total assets. S&P also warned that the growing piles of local government debt and corporate debt would add to China’s fiscal vulnerability and cost the banks dearly. That China’s banking system has a non-performing loan (NPL) problem is nothing new. The predictions of a Chinese banking crisis have been proven wrong for more than three decades because pessimists treat China as an open-market driven system with a liberalised capital market and an open capital account, which is clearly not the case. This is not to deny China’s financial risk. But the concerns should lie somewhere else in the system rather than in a systemic blow-up.