KUALA LUMPUR: As China’s deleveraging efforts continue to raise concerns that a global slowdown, Malaysia’s growing exposure to the Asian giant makes one wonder just how the local economy stands to be affected.
It appears that, so far, Chinese authorities have been clamping down largely on its privately owned entities, requesting that these companies sell their foreign assets and bring the proceeds back home. This reportedly saw property and entertainment conglomerate Dailan Wanda Group scrap its bid for the US$10 billion (RM43 billion) Bandar Malaysia development project.
However, what may be of a bigger concern is the debt carried by Chinese state-owned enterprises (SOEs) to fund their expansions. According to a report by Bloomberg, SOE debt makes up the bulk of non-financial corporate debt, which currently stands at US$17 trillion or some 59% of total outstanding debt of nearly US$29 trillion.
Second Finance Minister Datuk Seri Johari Abdul Ghani has said that Malaysia’s risks are contained as long as the government continues to deal with these SOEs. However, whether or not that will still apply when the time comes for China to trim its debts remains to be seen.
“If you look at China’s credit tightening, a lot of it will have to be done with SOEs because that is where a significant portion of its debt lies,” said Socio-Economic Research Centre (SERC) executive director Lee Heng Guie.
“[That means that] these firms are likely to be much more careful with their assessments of new investments going forward, even though they will probably uphold existing commitments,” Lee told The Edge Financial Daily.
Chinese President Xi Jinping has said that the lowering SOE debt should be made “the priority of priorities”, but most market watchers are hopeful that the world’s second-largest economy will deleverage prudently and be mindful of the domino effect its decisions will have.
“We are not convinced that the rhetoric regarding deleveraging will translate into an actual fall in debt,” said Christian de Guzman, vice-president and senior analyst of sovereign risk at Moody’s Investor Services.
“As such, we think that China can sustain [a] relatively healthy growth of over 6% over the next few years, which should be supportive of demand for Malaysia’s exports, inward flows of Chinese investment, and commodity prices in general,” he told The Edge Financial Daily in an email response.
In any case, a reform of SOEs appears to be a distant goal with no distinct solution yet, since China has no clear-cut way of “credibly disciplining its elder sons”, Deloitte China chief economist Stephen Xu Sitao said.
“The question to ask is whether or not the Chinese government can make budget constraints binding on SOEs,” Xu said at a conference on China’s banking and financial sector last week.
“And while the Chinese are good at making small things big, they are not good at making big things small. How do you consolidate such large SOEs?” he said.
The unlikelihood of the Chinese state rushing to curb the spending of its SOEs has led most experts to conclude that it would not pull back from the multibillion dollar investments it has promised to pump into its Belt and Road Initiative.
“If investments are sanctioned by the [Chinese] state, they will probably be given some leeway when it comes to tightening,” said Dr Yeah Kim Leng, economics professor at the Sunway University Business School.
Where Yeah expects to see tightening in China instead is on the supply side of raw materials such as coal, steel and cement, and zombie companies that have been supported by the Chinese government’s earlier willingness to provide cheap credit.
Meanwhile, Malaysia has been actively courting China’s SOEs for its infrastructure projects, including the RM55 billion East Coast Rail Link for which it signed a memorandum of understanding with China Communications Construction Company (CCCC), the republic’s largest construction outfit. Most recently, the light rail vehicle work package for light rail transit 3 has been awarded to a consortium led by CRRC Zhuzhou Locomotive Co Ltd.
Also worth mentioning is that out of the nine bids for the Bandar Malaysia project, seven have come from Chinese state-controlled companies, with the remaining two from Japanese developers. Putrajaya, in an announcement last month, said the bids are valued between US$7 billion and US$10.5 billion.
Separately, Chinese SOEs are also participating in the development of ports and industrial parks in Melaka and Kuantan, and the Four Seasons Hotel and the Tun Razak Exchange (TRX) Signature Tower here.
Although existing government-backed commitments and projects may remain unaffected for now, private companies that are deemed to be lacking synergies with China’s overall expansion strategy could see further curbs on their overseas expansions, SERC’s Lee said.
“These investments may be put on hold if [the Chinese government] considers the capital outflows too big and unnecessary,” he added.
China has, for example, been taking measures to cool its property market, noted RHB Asset Management chief investment officer, Mohd Fauzi Mohd Tahir.
Speaking to reporters after the asset management arm’s market insight forum last week, Mohd Fauzi concurred that this had translated into a slight slowdown in demand for properties in Malaysia built by Chinese developers, such as Country Garden Holdings Co Ltd’s US$100 billion (RM428 billion) Forest City in Iskandar Malaysia, Johor.
In April, it was reported that Country Garden assured mainland investors that it would refund them following Beijing’s crackdown on capital outflows.
According to a report by Nomura last week, it is possible that China’s highly indebted corporate sector would refrain from investing overseas until its deleveraging is complete.
But while China has been cracking down on the foreign assets of some of its biggest privately owned enterprises, it also saw the launch of 52 state-owned investment firms in 21 of its provinces last week, which will be investing state funds at the provincial and city levels, Reuters reported.
Beijing, however, has given an assurance that it will take steps to keep the deleveraging process smooth and orderly, the wire service quoted the People’s Bank of China assistant governor Zhang Xiaohui as saying.
But whether or not China can fulfil its promises remains to be seen.
个人评语：
1. 根据图表中国的总债务是US$29 Trillion (美元 27万亿), 主要债务集中在国有企业占全国总债务59% 或 US$17 Trillion (美元 17万亿)。中国政府现有外汇储备是US$3 Trillion (美元 3万亿)。中国国内生产总值(GDP)大约US$11 Trillion (美元 11万亿)。
2.中国的债务大吗？这样的债务对中国这个大国来说是警讯？这样的债务中国控制的到吗？
大，这是因为债务总数已经超过国内生产总值，是警讯。所以，我们可以看到中国政府最近非常积极的在减低与控制私人界的债务。国有企业的债务也在不断减低，控制与重组。可是，这样的债务还是在控制范围以内这是因为中国的经济体还在持续的成长。就算是每年只有6.7%的国内生产总值成长(GDP growth)对世界第二大的经济体来说这个数目还是相当大的。(大约每一年可以有0.7万亿左右的经济成长或相等于两倍马来西亚的GDP)
3.中国现有的优势有：
一，较高的储蓄率大约占45%的国内生产总值GDP(美元5万亿)。
二，根据McKinsey & Company 的报告中国于2020年，城市人口将有76%迈入中等收入，相等于五亿五千万的人口年收入介于US$9000 - US$34,00。这五亿的人口相等于1.7倍美国人口的总数。
三，深圳与上海的股市总价值亿达到US$6.6 Trillion(美元 6.6万亿)，这还没有加上香港的股市总值。中国持续的开放也让这个成功让中国A股被纳入MSCI新兴市场指数。
4.现阶段，我们认为中国的经济不会出现大问题。根据我们掌握的资料，中国还是一个可持续成长的国家。我们会密切关注局势的发展然后再与大家分享。
以上纯属个人分析与评论，如有任何疑问，欢迎与我交流讨论。任何股票买卖建议输赢绝对不负责。
From：林友志 （Lim Yu Chee)
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