The U.S. and Europe aren’t the only places where authorities are trying to wean economies off easy money. In China, policymakers and fiscal regulators are working hand in hand to defuse a debt bomb. But they’re doing it without resorting to big interest rate hikes that might crimp growth.
China’s total debt equaled 162 percentage of gross domestic product in 2008. By 2016 it had climbed to 259 percentage, an increase of more than $ 22 trillion, in large portion because of massive corporate borrowing. And even with the current push to deleverage, it could reach 327 percentage by 2022, according to Bloomberg Economics.
Speaking at an annual assemble of economic policymakers in Beijing in December, President Xi Jinping said curbing pollution, cutting poverty, and reducing indebtednes risks are the” critical battles” over the next three years. Zhou Xiaochuan, governor of the central bank, has warned that China may experience a “Minsky Moment” — a hard landing after an extended period of debt-fueled growth.
Since Xi consolidated power at a key Communist Party meeting late last year, China has doubled down on measures to address excess in the financial system, including rules and regulations to curb off-balance-sheet giving by banks and other fiscal mediators. Last year the government began reining in some of the country’s acquisitive private conglomerates–including HNA Group, Anbang Insurance Group, and Dalian Wanda Group–to avoid the kind of debt-fueled, cross-border trophy bargains that got the Japanese in trouble back in the early 1990 s.
Guo Shuqing, China’s top banking regulator–who many think is poised to become the next head of the central bank–has vowed to take action against those who built large financial conglomerates through complex ownership structures, which often disguise true debt levels.
HNA, a no-name regional airline that grew into a sprawling conglomerate, is already uncomfortably close to the edge of the abyss. It had $190 billion of assets–more than at American Express Co.–as of June, including stakes in everything from Deutsche Bank AG to Hilton Worldwide Holdings Inc . and properties on Third Avenue and Park Avenue in New York. Under pressure from the government, HNA has gone on a accident diet. It needs to sell off assets rapidly to cover a potential shortfall of at least 15 billion yuan ($ 2.4 billion) in the first quarter, according to people familiar with the situation.
Dalian Wanda, a conglomerate that includes the world’s largest cinema operator, has bailed out of luxury hotel and resort projects from London to Australia in recent months to raise money amid rising Chinese government scrutiny of how it financed a decade-long overseas expansion. Others are expected to follow, including insurance giant Anbang, proprietor of the Waldorf Astoria.