China regulator warns on global debt, rate risks at HK summit
China's banking regulator Xiao Yuanqi said global economic growth is unbalanced and unsustainable. He warned high debt and interest rates could lead to a 'negative cycle' that hampers investment and consumption.
China's Vice Chairman of the National Financial Regulatory Administration, Xiao Yuanqi, warned that global economic growth's balance and sustainability deserve high attention, speaking at the International Financial Leaders Investment Summit in Hong Kong on 3 November.
Xiao said China's economy grew by an average of 4.6 per cent in the first three quarters, with a 10-year government bond yield of about 1.63 per cent. Household and government leverage ratios stood at roughly 60 per cent and 70 per cent respectively, while corporate leverage was about 170 per cent. He noted that China is currently in a low-interest-rate environment with relatively balanced leverage and growth indicators, but expressed concern that rising global debt and interest rates could lead to a 'negative cycle'.
The regulator said global debt levels have fallen from their pandemic peak, but government debt continues to rise. He projected that global government debt would reach 100 per cent of GDP this year, with major economies' public leverage ratios increasing rather than decreasing. The US 10-year Treasury yield hovered around 5 per cent, while European bond yields were around 4 per cent.
Xiao noted that nominal interest rates have remained high globally in recent years. When economic growth is weak and unevenly distributed, and interest rates remain high, governments, businesses and households face dual pressure from slowing income growth and heavier debt interest burdens. This erodes the basis of debt repayment capacity, further increasing debt risk premiums and pushing up financing rates. It also suppresses investment and consumption, weighing on economic growth. If fiscal, monetary and other structural policies cannot be effectively coordinated, escaping the 'negative cycle' will come at a higher cost.
Xiao said major economies' monetary policy orientations have been wavering and inconsistent, making rebalancing more difficult. Central banks have been trying to curb inflation and reverse the low-interest-rate environment of the past 20 years, but inflation has not fallen back to target ranges in the past five years. He expressed concern that rising borrowing costs would further weaken investment and consumption. If current technology investment activity declines, the world economy will likely struggle to achieve the growth targets forecast by the International Monetary Fund.