Thursday, June 16, 2016
China's debt at 250% of GDP; Volkswagen eyes electric car leadership; Bank of Japan stands by stimulus
1 China’s debt at 250% of GDP (The Guardian) China’s total debt was more than double its gross domestic product in 2015, a government economist has said, warning that debt linkages between the state and industry could be “fatal” for the world’s second largest economy.
The country’s debt has ballooned to almost 250% of GDP thanks to Beijing’s repeated use of cheap credit to stimulate slowing growth, unleashing a massive, debt-fuelled spending binge.
China’s borrowings hit 168.48 trillion yuan ($25.6 trillion) at the end of last year, equivalent to 249% of economic output, Li Yang, a senior researcher with the leading government think-tank the China Academy of Social Sciences (CASS), said.
But the huge number, which includes government, corporate and household borrowings, was lower than some non-government estimates. The consulting firm McKinsey Group said earlier this year that the country’s total debt had quadrupled since 2007 and was likely as high as $28 trillion by mid-2014.
The debt-to-GDP ratio is not the highest in the world. The US has a ratio of 331%, for example, much of which is accounted for by federal debt. But part of the concern about China’s massive debt binge is that the most worrying risks lie in the non-financial corporate sector, where the debt-to-GDP ratio was estimated at 156%. This sector includes the liabilities of local government financing vehicles, Li said.
Many of the companies in question are state-owned firms that borrowed heavily from government-backed banks and so problems with the sector could ultimately trigger “systemic risks” in the economy, he said. “It’s a fatal issue in China. Because of such a link, it is probably more urgent for China than other countries to resolve the debt problem,” he said.
The country’s economy grew 6.9% last year, the slowest rate in a quarter of a century, and weakening economic figures have signalled the slowdown has continued this year.
2 Volkswagen eyes electric car leadership (BBC) Volkswagen plans to launch 30 all-electric models to reposition itself as a leader in "green" transport. Matthias Mueller, chief executive of Europe's biggest carmaker, said huge investments would be needed as the firm moves beyond the "dieselgate" scandal.
He hopes that by 2025, all-electric cars would account for about 20-25% of the German carmaker's annual sales. Latest figures show that sales growth of Volkswagen-branded cars continues to fall behind European rivals.
Outlining what he described as the "key building blocks in the new group strategy", Mr Mueller said VW aimed to "transform its core automotive business or, to put it another way, make a fundamental realignment in readiness for the new age of mobility".
Mr Mueller said VW's transformation would involve investments in the double-digit billions of euros, funded by savings and cost-cuts, with all brands and businesses having to contribute. The company's components business, spread across 26 plants, will be streamlined, and there will be a focus on cutting sales and administration costs. Sales of Volkswagen-branded cars rose 4.1% in May, compared to the same month last year. But that was sluggish when compared to 28.7% growth for Renault and 18.7% growth at PSA Group, owner of Peugeot and Citroen.
3 Bank of Japan stands by stimulus (San Francisco Chronicle) Global stocks fell Thursday after the Bank of Japan kept its monetary policies unchanged and as investors turned their attention to next week's "Brexit" vote on whether Britain should exit the European Union.
Japan's central bank once again foiled speculation it might further ease monetary policy to help the faltering recovery. The Bank of Japan is pumping about 80 trillion yen (about $769 billion) into the economy each year with purchases of Japanese government bonds and other assets.
Meanwhile, Japanese officials warned they may have to intervene if the yen jumps too much. A stronger yen, which hurts profits of exporters, tends to pull share prices lower. The Federal Reserve said it was keeping interest rates unchanged in light of an uncertain job market, offering no hints of when its next rate hike might occur. With the jobs situation and Britain's status obscuring the outlook, the Fed said that it needs a clearer economic picture before resuming the rate hikes it began in December.