China | Corporate deleveraging campaign: from "proactive" to "passive"

Summary

Chinese authorities’ 2016-2018 corporate deleveraging campaign seems to have given way to the escalating China-US tensions and the COVID-19, however, it restarts now in a more "passive" way.

Key points

• Key points:
• The PBoC altered its monetary policy stance from previous tightening in 2016-2018 for the deleveraging campaign to accommodative in the past two years to deal with the China-US trade war and COVID-19.
• However, due to China’s “first-in first-out” of the pandemic and the mesmerizing economic recovery since April 2020, the authorities have started to reconsider the financial risks and corporate debt overhang.
• Debt ratio naturally increased in China due to the stimulus measures, urging the authorities to start deleveraging again in the post-pandemic time.
• We discussed the bond default situation in 2020 and the motivation for the authorities to adopt a “passive” deleveraging method instead of a “proactive” one like what they did before the trade war.
• We also discuss the deleveraging campaign outlook in 2021.

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