Wang Shengbang:

I'd like to take this opportunity to briefly respond to a recent social concern that China has a high level of debt but a low level of non-performing bank loans, since media reports and institutional speculations both have addressed this issue. But allow me to brief you first on some concepts.

We noticed recently that the IMF, BIS, Goldman Sachs, Goldman Sachs Gao Hua Securities, Morgan Stanley and J.P. Morgan, among other financial institutions, all have their own speculations about the rate of potential non-performing loans in Chinese banks, and their data vary greatly from ours. So you may think that our data didn't fully expose the problems.

But you should understand two concepts. First, we are talking about non-performing loans, and the media or third-party agencies were speculating about potentially risky loans; they are two different concepts. What is a non-performing loan? As per international rules, a loan can only be deemed non-performing when objective evidence show that its value has depreciated or if there's a risk that it can't be fully paid back.

In April, the Basel Committee on Banking Supervision provided its definition of a non-performing asset, which you can also find. Other agencies may pay more attention to potential risks, so that according to financial indicators, such as the IMF's interest coverage ratio, which is meant to test whether an enterprise's pre-tax revenue could cover the interest of its loans, they conduct calculations of our risks. Other agencies may base their calculations of non-performing loan (NPL) ratio on stock prices, special-mentioned loans (SML) that banks announce, or the structure of industrial loans.

I am sure these analyses have their own reference value, but the NPL ratio that we use follows a strict definition. To have those differences isn’t strange because the concepts themselves are different.

The NPL ratio in our commercial banks is a result of many factors. As for the two most important ones, one is the rise of the ratio based on a very small basis number. We’ve conducted reforms of state-owned banks throughout the past few years when the ratio was 0.9 percent. Now it has almost doubled to 1.75 percent.

Second, also during the past few years, commercial banks have eliminated many non-performing loans with a provision for impairment. Around 2 trillion yuan worth of non-performing loans were dealt with through these means or others, which were entirely market-based measures. As per the Regulations on the Management of Bank Provision for Loan Impairment, banks should set aside more such funds when the economy thrives. This is how we can come up with the funds to cover the impairment now that the economy faces downward pressure. Therefore, commercial banks only saw a slow growth of non-performing loans in the past three years.

In so doing, we didn't repeat what we did during the 1990s, nor did our economy resemble that of the Western countries when the economic downturn was in sync with a rising NPL ratio. The main reason for our differences is that we had accumulated very abundant economic resources beforehand to cover the impairment, or at least to curb the rising NPL ratio.

I can tell you that our commercial banks' provision for impairment now stands at 175 percent, meaning that we can not only respond to current non-performing loans but also easily handle with more assets that become non-performing. Thank you!

Xi Yanchun:

Regarding your first question, I consulted others just now. Since the debt issue involves a larger field, there are more suitable agencies to answer your question. We will contact them to provide you with the answer.

NHK:

You said that the key to smoothing out future risks is stable development, but growth in northeast China or Shanxi Province isn't really stable. In this case, corporate debt in those places is growing. Although they are controllable overall, specific risks are still high. What is your response to this? For China's stable development, the global economy is also important. If Britain decides to break away from the EU, what impacts will China's economy, particularly China's corporate debt, feel? Thank you.

Sun Xuegong:

The Chinese economy now features some regional differences. In other words, some regions feel difficulties, and that is caused by the feature of this round of economic downturn. Just now, we mentioned some industries with excessive capacity, particularly the coal and steel industries which are greatly affected during this round of economic downturn, not only in China, but across the world. The energy and steel sectors throughout the world, in fact, now face similar difficulties.

Out of the economic structure, Shanxi and northeast China have a comparably larger presence of these two industries and therefore face more difficulties. The remedy, on one hand, depends on overall economic improvement, which took place this year, bringing up global energy prices. This trend is positive for the two regions. On the other hand, we will deepen the economic restructuring, particularly economic transformation, which we already promote in these regions to optimize their economic structure and to lower their dependence on a single industry.

For northeast China, the National Development and Reform Commission recently unveiled a new round of the Northeast Revitalization Plan. If you are interested, you may find the new content in detail. For the development of these regions, on one hand we will depend on overall economic improvement and on global recovery, and on the other hand we are vigorously promoting economic transformation and restructuring to solve their problems at the root.

Xi Yanchun:

Your second question is based on a presumption. We are waiting for the result to come in and we will have officials to answer your question then. Thank you.

Financial Times:

The 13th Five-Year Plan (2016-2020) sent a clear call to deleverage. But the past year's statistics show that the private sector features rapid deleveraging, whereas the state-owned enterprises raised their leverage ratio. Could you please explain why such a difference exists? Why didn't the SOEs implement the policy while the private sector did?

Xi Yanchun:

We have a department that specially administers state-owned enterprises. They may be more appropriate to answer your question than any of us sitting here. We will contact them to provide you with an answer.

Related

Go to Forum >>0 Comment(s)