S&P: China only taking baby steps cutting leverage

S&P: China only taking baby steps cutting leverage

Share: 

China has taken "baby steps" toward cutting leverage as lending from banks slows, but progress has been uneven as borrowing by households and the government has risen, according to S&P Global Ratings. Authorities are adopting both tight and loose policies to try to reduce the country's dependency on debt without causing a hard landing, analysts led by Christopher Lee wrote in a note dated Oct. 16, Bloomberg reports. S&P last month cut China's sovereign rating for the first time since 1999, saying it didn't believe enough was being done to contain credit growth. The next big test is whether companies can withstand higher funding costs as financial conditions tighten, according to S&P. "Smaller and less-capitalized banks may feel the liquidity squeeze and pressures on their capital, leading to distress," the analysts wrote. "Passing the baton of credit-fueled growth in recent years to households also has many obvious risks," such as a correction in the property market hurting consumption, they said.