(Bloomberg) -- China will further open its capital markets to foreign investors, helping the nation dodge any credit crisis by lightening its $18 trillion load of corporate debt, according to Australia and New Zealand Banking Group Ltd.’s top banker in the country.
With last month’s Communist Party congress over, the government will probably accelerate the sale of shares in state-owned enterprises to overseas investors, raising cash to reduce their borrowings, said Huang Xiaoguang, the chief executive officer of the bank’s China business. Further overseas bond sales by Chinese entities will allow the country to tap into new pools of capital, he said in an interview at ANZ Bank’s Shanghai office on Thursday.
There’s little chance of a financial meltdown in China because the biggest slice of the domestic debt pile is carried by SOEs, said the 58-year-old, who previously oversaw the China operations of Bank of America Corp. and Citigroup Inc. In the worst case, the government could take over SOE liabilities and sell them to distressed debt operators, said Huang.
“I doubt there’s going to be a credit crisis at the end of the day,” he said.
There’s certainly room in China’s capital markets for more foreigners: they hold only 2 percent of total Chinese bonds, according to data from the People’s Bank of China. As for equities, overseas investors can access mainland shares via trading links between Hong Kong and Shanghai, and between Hong Kong and the southern city of Shenzhen. Latest central bank data show record overseas demand for both Chinese debt and equity.
Huang’s expectations for a managed rundown of debt adds to the growing number of analysts who downplay the doomsayers’ predictions of a credit collapse in China.
“After the 19th party congress, one thing that will definitely happen is China’s going to develop its capital markets, bond and equity,’’ said Huang. “They will allow more and more international institutions to come in. They want to have a more developed capital market, then more good companies can list and improve the balance sheet.”
China’s corporate debt ballooned to 118 trillion yuan ($18 trillion) by the end of 2016 after authorities let credit flow to avoid the worst of the global financial crisis. Overall government, household, and corporate debt clocked in at 193 trillion yuan, or about 260 percent of gross domestic product.
The gradual deleveraging process may take three to five years, Huang said.
ANZ Bank is focusing on funding Chinese companies as well as Australian firms seeking opportunities in China, Huang said.
The bank has scaled back its Asian operations under CEO Shayne Elliott since last year, partially reversing the expansion of predecessor Mike Smith. ANZ in January agreed to sell its 20 percent stake in Shanghai Rural Commercial Bank Co. for A$1.84 billion ($1.4 billion).
But Huang said there are still plenty of opportunities helping Chinese companies seeking to expand across the Asia-Pacific region. “If we can focus on those companies, our network will play a role.”
©2017 Bloomberg L.P.
With assistance from Angus Whitley