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A report released Tuesday by the French Bank for Foreign Trade (Natixis) predicts that China's policy measures this year will support growth rather than deleveraging, that bank credit and bond financing will increase, and that the authorities will "use both hard and soft" to encourage financial institutions to provide credit to private enterprises, that corporate leverage will rise, and that fiscal stimulus measures will increase government debt.
Since 2017, the Mainland has taken bold measures to reduce the risks of shadow banking, such as entrusted loans and P2P loans (online lending platform), but this is not enough to reduce overall liabilities, whether in the financial sector or in the real economy, the report said.
In terms of financial leverage, although the total amount of social financing has slowed down significantly, it can not be said to be de-leveraged because its growth rate is still higher than nominal gross domestic product (GDP). For the real economy, the debt-to-GDP ratio continued to rise from 246% in 2017 to 248% last year. The only thing to see deleveraging is business, not the public sector or households.
Looking ahead, the French Foreign Trade Bank said that bank credit and bond financing are expected to increase with the measures taken by the mainland authorities this year, and the authorities will adopt a "hard and soft" attitude to encourage financial institutions to provide loans to private enterprises, which will increase the leverage of enterprises, especially private enterprises. In addition, fiscal stimulus measures will also increase government debt.
The bank said the key question was whether financial leverage would go further and in what form. More specifically, will the crackdown on shadow banking be over? At present, banks have become key players in providing loans to help the mainland government achieve economic growth targets. The bank believes that new forms of shadow banking may flourish to support banks in this area. Thus, traditional financial products and P2P loans may continue to be affected, but as more and more banks set up their own asset management companies, they may introduce new financing channels. At the same time, the bank expects banks to increase asset securitization and free up balance sheet space to provide new loans.


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