S&P Global Ratings said Oct. 17 that it expects China's corporate borrowing to slow over the next five years due to improving profitability and a tighter lid on investment spending. However, household debt will continue to rise amid an already expensive real estate market.
The rating agency said Beijing has made a "tentative but uneven" start at reducing the level of debt in its economy.
Although firm commodity prices have helped industrial companies improve their balances sheets, lending to households and for government-related infrastructure spending continues to expand.
While banks' asset growth trailed nominal GDP for the first time since 2012, a sign that the policy mindset has shifted to "tight/neutral", Beijing continues to allocate funds to favored sectors, including government-related infrastructure investment.
"After years of credit growth outpacing nominal GDP growth, the country's financial buffers are thinning," said S&P Global Ratings credit analyst Qiang Liao. "Unless China curbs its debt appetite, these buffers will continue to thin, diminishing policy response to financial stress."
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.