Debt defaults in China will not pose a systemic risk, and the government can increase its leverage to help the corporate sector to deleverage, media reports said on Thursday, citing officials.
China's overall debt risk is generally controllable, officials said at a State Council Information Office (SCIO) briefing on issues related to China's debt levels held in Beijing Thursday.
Rising corporate debt has been drawing concerns, experts said.
Sizeable contingent liabilities, stemming largely from the State-owned enterprise (SOE) sector, are viewed as the main source of risk facing the Chinese government, according to a report sent to the Global Times by Moody's Investors Service on Thursday.
SOE leverage will continue rising in the coming 12 months, while companies, banks and regional and local governments are most exposed to losses from ongoing capacity reductions, according to the report.
The government has room to raise debt levels, which will help lower corporate leverage, officials attending the briefing said on Thursday.
The officials noted that deleveraging should take place in a gradual manner, and deleveraging too quickly will increase risks.
Banks' bad loan ratios are rising but are still at relatively low levels, and banks have written off 2 trillion yuan ($304 billion) worth of bad loans in the past three years, said media reports.
The accumulation of debt reflects features of China's developmental stage, according to Jiang Zhen, who is a research fellow at the National Academy of Economic Strategy at the Chinese Academy of Social Sciences.
"As China is still a developing country, a lot of funds were raised via debt and went into infrastructure such as roads, bridges and railways. Such investment takes time to generate returns," Jiang told the Global Times Thursday.
Jiang said that he is confident that the debt problem is manageable.
