The governor of China’s central bank has expressed unease at the levels of debt being held by Chinese corporations, a situation with significant implications for the country’s real estate investors.
Zhou Xiaochuan, governor of the Bank of China, made the comments at the China Development Forum in Beijing this week as the country struggled with slowing growth and rising demand for debt from its domestic companies.
Rating agency Moody’s, which is considering downgrading China, said recently that corporate debt in China had risen to 160% of GDP. Overall debt hit 300% of GDP in 2014, it said.
According to the IMF, the real estate and infrastructure industries are at the forefront of borrowing in China, a situation exacerbated by low-cost debt provided to them by lenders.
Chinese investors have been at the forefront of some of the world’s biggest deals in recent years. Chinese insurance group Anbang is currently locked in a takeover battle to buy Starwood Hotels & Resorts Worldwide for $13.6bn (£9.6bn).
Such levels of debt put global credit markets at risk, according to Zhou, particularly if Chinese companies are unable to repay debts, which in extreme cases could be three times the value of assets held and could slow investment into overseas markets.
Zhou advocated reform of the financial markets that would allow Chinese firms to access more equity rather than debt.