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China’s Financial Markets Start to Price In Deleveraging

  • Debt-to-GDP ratio rose to record 277% after 2020 stimulus
  • Concern over tighter liquidity has led to corporate defaults
relates to China’s Financial Markets Start to Price In Deleveraging
Photographer: Qilai Shen/Bloomberg
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China is bucking the global trend of greater economic stimulus amid the coronavirus, preferring instead to refocus on controlling its record debt burden.

Policy makers are allowing for tighter liquidity in the financial system, a signal that Beijing wants to stabilize the level of debt in the economy. Though not as aggressive as previous deleveraging drives, the shift is pushing up market rates: government-bond yields trade near an 18-month high and interbank borrowing costs last month jumped to the highest since January. China’s big banks have been unwilling to lend to smaller financial firms after a string of defaults at some of the country’s safest borrowers.