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China economy recovers while companies gather on debt

March 27, 2019 | Wednesday

China Economy

   

On Wednesday, a report release stating Beijing's capability to engineer growth financially within an ever-increasing cost.

According to the latest report of China Beige Book, it found out "an unmistakable first-quarter recovery" brought by the increased credit. It runs to support Beijing's plan to lessen dependence on debt and or the process of decreasing leverage in paying a debt. Additionally, according to the report, the revenue, investment, and hiring percentage improved nationwide compared to the preceding quarter.

China Beige Book publishes a review quarterly of the economy with a survey from more than 3,300 businesses in China.

Chief Executive Officer of China Beige Book, Leland Miller said, “I don’t think people understood the level (to which) there was a decision by Beijing, they were going to reverse course on deleveraging and all the progress they made.” Then she added, “The idea that deleveraging has continued through 2018 and into 2019, that’s laughable.”

China, as the second largest economy worldwide had an economic slowdown which began last year. Mostly because of the pressure effort of Beijing to lessen dependence on debt. That, according to critics is harsh. Another pressure also came from the trade tension with the United States. During the second half of 2018, Beijing moves to stimulate an announcement to cut taxes and financing costs.

Upon pressures, its government echoed to large state-owned banks. Ordering them to lend more on smaller and private businesses. Those small private businesses contribute notably on the economic growth and employment yet have its traditional timeframe difficulty on getting loans compared to the larger and state-owned corporation. To support the government's plan, People's Bank of China in December announce its special tool for lending towards smaller businesses. That of which they called the "Targeted Medium-Term Lending Facility."

As a result, it opened a source of financing. According to the China Beige Book, the rate of lending by private companies increased during the first quarter. It came more than the state-owned enterprises.

Subsequently, there is growth in the cost of borrowing, every single sector and region of China found out credit cost grows during the first quarter. An increase of 101 basis points or a 6.9 percent came to the average bank loan rate. At the same time, the average non-bank rate increase by 426 basis points, or 11.42 percent.

   

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