China vows to control debt despite fresh stimulus for cooling economy

Thursday, 16 August 2018 00:00 - - {{hitsCtrl.values.hits}}

BEIJING (Reuters): China’s state planner pledged on Wednesday to keep debt levels under control even as Beijing rolls out fresh stimulus to support the stumbling economy as a trade war with the US deepens.

The comments by the National Development and Reform Commission (NDRC) came a day after China reported surprisingly weak data that showed investment growth has slowed to a record low.

In a bid to stabilise business conditions and weather the trade war, Beijing is stepping up infrastructure spending and injecting more funds into the banking system, which is lowering borrowing costs. New loans by China’s largely State-backed banks surged 75% in July from a year earlier.

But some China watchers fear Beijing’s shift in priorities may mark a return to its unrestrained, credit-fueled growth, reversing years of work by regulators to reduce risks in the financial system and stem a rapid build-up in debt.

NDRC spokesman Cong Liang told a media briefing that new spending on roads, railways, elderly care and education will not be as heavy as in the past and will aim to meet real demand, reducing the risk of over-capacity.

Authorities are also hoping to attract private investment in such projects to reduce the government’s debt burden, he said, noting that regulators are relaxing restrictions on local governments’ ability to sell special bonds to fund projects.

Several large rail projects have been announced in just the last few days.

Cong reiterated a

pledge made by the ruling Communist Party’s Politburo last month that China will still meet this year’s economic growth target of around 6.5%, despite the trade war.

Analysts say that will surely require more spending, but Cong maintained that the government will push ahead with its “structural deleveraging” in a gradual and orderly way.

Highlighting the dangers policymakers face in stimulating the slowing economy without fueling asset bubbles, data on Wednesday showed China’s new home prices accelerated at their fastest pace in almost two years in July.

Cong said China would “resolutely curb” property price rises.

“We still have sufficient capacity to cope with impact from escalating trade frictions, and ensure the successful completion of the economic and social development goals set at the beginning of the year,” Cong said.

At the start of this year, China’s leaders had made risk and debt reduction their top priority, even if it led to somewhat slower growth.