PBOC sounds alarm over borrowing

Xu Zhong, head of the People’s Bank of China’s (PBOC) research bureau, said: “China’s overall leverage is rising at an alarming pace, especially in the financial sector,” in commentary published in leading China business journal, Caijing Magazine.

Leverage, the practice of borrowing multiples based on asset valuations, was widely considered to be a key factor in the global financial crisis of 2008. Xu said the country needed to deleverage at a “proper pace” to reduce financial sector debt and avoid systemic financial risk, reports Reuters.

Commentators have pointed to the overheated housing and real estate markets in China as key indicators of excessive debt levels; the US mortgage market was the catalyst for the financial crisis a decade ago.

China debt to GDP ratio stands at 277 per cent and is increasing due to debt servicing costs, according to UBS analysts. The Bank for International Settlements warned that excessive credit growth in China could trigger a banking crisis in the next three years.