China's policymakers are stepping up efforts to rein in risks stemming from rampant growth in shadow banking products, elevated corporate debt and surging home prices.
A new ministry-level committee led by National Development and Reform Commission chairman Xu Shaoshi will seek to ensure companies reduce leverage, according to a statement from the State Council, China's Cabinet.
Separately, the central bank is conducting a trial monitoring of banks' off-balance-sheet wealth management products under its macro-prudential assessment system, according to people familiar with the matter.
Meanwhile, the southern city of Zhuhai - bordering Macau - has become the latest to introduce measures to curb soaring property prices. More than 20 cities have put in place purchase curbs and toughened mortgage rules since last month, reversing two years of easing to support home buyers. With the US$11 trillion (S$15 trillion) economy stable for now, policymakers are switching from stimulus mode to risk control.
China urgently needs a plan to address a build-up of corporate debt, with the window to address it "closing quickly", an International Monetary Fund working paper cautioned this month.
The State Council recently issued guidelines for reducing corporate debt and for banks to swap debt to equity. Officials from the People's Bank of China and other government regulators had held a briefing at which they described corporate leverage as high among major global economies.
China's total debt grew 465 per cent over the past decade, according to Bloomberg Intelligence. Total debt rose to 247 per cent of gross domestic product in 2015, from 160 per cent in 2005, with corporate debt jumping to 165 per cent of GDP from 105 per cent.
Central bank deputy governor Fan Yifei and Vice-Finance Minister Shi Yaobin will be part of the committee to keep a lid on leverage. While policymakers may have some success controlling the pace of further debt expansion, they will have less luck cutting leverage, said chief economist Xu Gao at Everbright Securities in Beijing. "There's a reason China has such high leverage, and it's because the saving rate is so high."
Without appropriate channels for investment, these savings will keep creating bubbles, he said. In the central bank's trial, wealth management products will be included in calculating broad-based credit, the sources said, asking not to be identified. Currently, the products are not included in the assessment framework.