The Debt Rollercoaster

Reining in credit growth maynot be as scary as some people fear

“COASTER through the Clouds” in Nanchang, a city in the southern province of Jiangxi, is China’s tallest and fastest rollercoaster (see picture). It carries terrified customers up to heights of 78 metres and down again at speeds reaching 130kph. The ride towers above an amusement park built by Dalian Wanda, a Chinese property-and-entertainment conglomerate, which has aspired to outdo Disney’s resort in Shanghai.

But this month the group said it was selling13 such projects and 77 hotels to rival developers. It would use the proceeds, its owner said, to repay loans. Last month China’s regulator asked banks to provide more details about their overseas loans to Wanda. Standard & Poor’s said it would reassess the group’s credit rating, noting that the abrupt sale of assets had raised questions about Wanda’s strategy and finances.

Wanda is the most prominent of China’s highly geared companies, of which there are many. Corporate liabilities, including those of state-owned enterprises, amounted to 166% of GDP at the end of 2016, according to a measure by the Bank for International Settlements (BIS). Add in rapidly growing household debt and the total was over 210%, unusually high for an emerging economy.