Asia Pacific Major Report - China Real Estate Debt - An Assessment of Credit Risk in the Chinese Property Market October 2016
Investors in China are increasingly concerned about rising debt, with total credit to the non-financial sector reaching 255% of GDP as of March 2016. Between 2008 and 2015, credit increased at a Compound Annual Growth Rate of around 20%, well above the average GDP growth rate of 8.5% recorded over the same period.
Commercial banks’ non-performing loan (NPL) ratio had risen to 1.75% in Q2 2016, as slower domestic economic growth and the fluctuating stock market resulted in the deterioration of asset quality. The NPL ratio has now returned to levels recorded before the government’s RMB 4 trillion financial stimulus package was launched in 2009.
The number of defaulted companies has increased in recent years, with 13 cases recorded in 2015, more than double the number in 2013 and 2014. Five of the defaults recorded last year were assigned a rating of A or above by independent credit agencies.
In the real estate industry, several defaults have occurred over the last two years, prompting talk of growing credit risk in the sector. This special report will assess credit risk in the Chinese real estate market and discuss the implications for the overall property market.