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China’s Credit Party Winds Down in Headwind for GDP Growth

davidstockmanscontracorner.com / by Bloomberg Business / 

Chinese companies’ borrowing costs have never been so low. That’s little consolation to firms cutting debt rather than investing amid a slowing economy.

The amount of local yuan bond sales minus maturities fell 39 percent in August from a year earlier for non-financial firms to 124 billion yuan ($18.6 billion), data compiled by Bloomberg show. Net issuance since March 31 has slowed to 496 billion yuan after a record 810 billion yuan in the first quarter of 2016. Yields on AA+ and AA rated five-year securities dropped to record lows this month.

The decline in bond financing and the lowest fixed-asset investment growth since 1999 suggest central bank monetary easing will have trouble reviving growth that’s forecast to slow through next year. China must balance cutting corporate debt, which more than doubled in five years to 111.7 trillion yuan at the end of 2015, with steps to revive the world’s second-biggest economy.

“Firms are adjusting their balance sheets by slowing further investments and hoarding cash because they see more uncertainty with economic growth,” said Xia Le, chief Asia economist in Hong Kong at Banco Bilbao Vizcaya Argentaria SA. “For the aggregate economy, it means slower growth because fewer companies are expanding.”

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