23 February 2019
Premier Li Keqiang has signalled that the government will speed up tackling bad loans. Photo: Xinhua
Premier Li Keqiang has signalled that the government will speed up tackling bad loans. Photo: Xinhua

Eight key points in Premier Li’s government work report

Chinese Premier Li Keqiang mentioned bad loans and credit defaults in the government work report. It seems that the central government is poised to accelerate tackling bad loans.

Chinese banks have been grappling with rising non-performing loans (NPLs) since 2013. NPL growth has started to moderate since the second half of last year.

The outstanding NPL in the nation’s vast banking system reached 1.51 trillion yuan (US$218.6 billion) at the end of last year, up 18.3 billion yuan from the previous quarter, according to data from the China Banking Regulatory Commission. And the NPL ratio edged up to 1.74 percent.

Beijing has tried various ways to defuse bad debt in recent years. For example, local governments have established asset management firms to deal with bad debt in different regions. Also, Chinese banks have tested debt-to-equity swap programs, as well as a bad loan securitization scheme.

Li highlighted eight key points in his report.

1. Elimination of overcapacity

China has vowed to phase out 50 million metric tons of steel capacity and more than 150 million metric tones of coal capacity this year. Also, it aims to shut down, suspend or delay more than 50 gigawatts of coal-fired power capacity in order to promote clean energy.

2. SOE reform

China will deepen mixed ownership reform and strive to achieve concrete progress in the power, oil, natural gas, railway, civil aviation, telecom and defense sectors this year.

3. Emerging industries

China will fully implement a strategic emerging industry development plan, and speed up new materials, artificial intelligence, integrated circuit, biopharmaceutics and fifth-generation mobile networks. The authorities will promote industry clusters to improve efficiency.

4. Poverty alleviation

China will deepen targeted poverty alleviation measures and reduce the poor populations in rural regions by more than 10 million this year. Also, the nation will relocate 3.4 million people to help them get rid of poverty this year. The central government will spend 30 percent more in specific poverty alleviation funds.

5.Environmental protection

China will step up efforts in environmental protection and reduce sulfur dioxide and nitrogen oxide emissions by 3 percent this year. The level of PM2.5 is expected to fall markedly in key cities. Meanwhile, the authorities will tackle coal pollution and car emissions.

Air, water and soil will be three key areas in environmental protection during the 13th five-year period. Authorities will step up monitoring and adopt various measures to optimize industry restructuring and lure capital into the sector.

6. Healthy China

China has unveiled a “healthy China” strategy. The government will set up a nationwide information system and offer direct settlement services for hospitalization. A pilot medical system and community family physician services will be expanded to more than 85 percent of Chinese cities. Also, China will improve child health services as the nation relaxes the second-child policy.

7. Infrastructure investment

China will aggressively expand effective investment and complete 800 billion yuan of railway and 1.8 trillion yuan of hydro investments. The nation will start 15 major hydro projects this year and continue key projects in rail transport, civil aviation and telecom infrastructure. Total infrastructure investment is estimated at 16 trillion yuan this year. 

8. Property

Beijing will continue a differentiated approach to property curbs and focus on drawing down inventory in lower-tier cities. Housing prices in these smaller cities are unlikely to slump in the short term. Property would remain one of the most sought-after sectors for investors if banks continue to pump liquidity into property firms.

This article appeared in the Hong Kong Economic Journal on Mar. 13

Translation by Julie Zhu

[Chinese version 中文版]

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Senior investment banker

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