Hong Kong, June 11, 2014 - (ACN Newswire) - China could speed up its privatisation agenda and loosen controls on the issuance of bonds to avoid potential default on the burgeoning debt held by local governments, ANZ's Greater China Chief Economist Liu Li-Gang told the ANZ Business Leaders Forum in Hong Kong today.
China's rapidly growing shadow banking system has raised concerns that the country's economy may be hit. Dr Liu estimates China's shadow banking system was worth at least RMB23 trillion by the end of 2013, about 15% of all officially reported banking assets and 40% of China's GDP.
The sector has helped fuel a surge in local government debt through off-balance sheet vehicles to borrow money for development projects. China's National Audit Office (NAO) announced that China's total government debt, including both central and local governments and contingent liabilities, China's total government debt would exceed RMB30 trillion, equivalent to 50%-55% of GDP.
Dr Liu said: "There are different policy options available to prevent massive defaults that may trigger a hard landing for China's economy. Given Chinese local government debt is largely associated with infrastructure financing, privatisation or state ownership dilution can substantially reduce local government debt levels."
"We also believe that Chinese local governments are still asset rich as they own state-owned enterprises and commercial banks so allowing local governments to directly tap into bond markets will reduce the risks of local government financing vehicle (LGFV) defaults," says Dr Liu said.
While China maintains a GDP growth target of 7.5% for 2014, it has also raised the target of newly created jobs to 10 million from 9 million in 2013, indicating that China is gradually shifting its policy emphasis to employment. ANZ has maintained its forecast of 7.2% GDP growth in 2014 unless meaningful monetary easing policy is implemented.
New home sales in all tiers of Chinese cities have dropped sharply in the past few months and unsold new home inventories have picked up significantly since Q4 2013, but Dr Liu said this was a normal cyclical downturn rather than cause for alarm.
"While all these indicators appear to have pointed to a slowdown in China's property market, we do not think they predict that China's housing market is about to collapse. In our view, China's property market is experiencing a typical cyclical slowdown, which has occurred in past economic cycles," Dr Liu said.
ANZ Business Leaders Forum 2014 is the first Business Leaders Forum geared for industrialists and manufacturers organised by ANZ. This year's theme is Unleashing ASEAN Opportunities from China's Restructuring - Experts' Views for Industrialists and Manufacturers. The forum brings experts and business leaders, including keynote speaker Andrew Sheng (Former Chairman of the Securities and Futures Commission), together to discuss crucial topics ranging from China-ASEAN economic ties to sustainability and regulatory issues.
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ANZ's history dates back over 175 years and now spans 33 markets in Australia, New Zealand, Asia Pacific, Europe, America and the Middle East. The No.1 bank globally on the Dow Jones Sustainability Index (DJSI), ANZ provides a range of institutional, commercial, retail, wealth management and private banking services. ANZ's global connections and deep local insights provide customers access to Asia Pacific's expanding trade and investment flows, supporting their domestic requirements and connecting them with ANZ's global expertise.
Source: ANZ
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