China’s race to meet official growth targets has led to critical levels of debt amongst Chinese companies as they fuel expansion overseas, the country’s central bank has said.
Speaking to journalists, People’s Bank of China Governor Zhou Xiaochuan said that the Government needs to address levels of debt and leveraging.
“Non-financial corporate leverage is too high,” he said, adding that banks will withdraw support for financially unviable firms, and seek restructures of firms to reduce “industrial overcapacity” – which could include job losses.
It is an unprecedented step by the sometimes secretive nation which has recently adjusted growth downward in 2017.
The warning from China’s most senior financial expert came as the country’s mining companies are seeking expansion in Australia.
One such debt-laden company, Yancoal, is seeking a multibillion dollar takeover of major coal assets in the Hunter Valley.
It recently announced that it had suffered another loss of $227 million between 2015 and 2016. This now totals $1.7 billion in losses over the past four years.
The company is also carrying significant debt of $5.7 billion, and has a debt to equity ratio five times larger than its major competitors.
Its parent company Yanzhou is debt-laden, with ratings agency Moody’s assigning it a junk credit rating (B2) and a negative outlook.
At a time when Yancoal has been attempting to court investors to bankroll its expensive venture, the Bank of China’s warning may scare off prospective backers.