Right debt control 'path' will not hamper growth

China's economic growth will not be derailed by deleveraging moves as the government will implement such efforts at the proper pace, according to senior officials with the nation's top economic regulator.

"Reducing leverage will be helpful to eliminate potential risks that affect the healthy development of the economy," said Chen Hongwan, head of the department of fiscal and financial affairs with the National Development and Reform Commission, on Thursday.

"It is not appropriate to simply put deleveraging on the opposite side of economic growth. Efforts such as shutting down zombie enterprises and promoting market-based debt-to-equity swap programs will optimize the efficiency of resource allocation," he said.

"Choosing the right path and the right timing" to implement deleveraging efforts "will achieve high-quality development."

China has elevated deleveraging on its agenda, listing it as one of five key economic tasks as the nation switches its development model to rely less on debt-driven growth.

Guidelines to curb debt risks have been rolled out in the past few years, covering a variety of ways for enterprises to lower their debt burden such as mergers and acquisitions and debt-for-equity swaps.

But the government is now faced with the tougher test of continuing to promote deleveraging at a time when external challenges such as the trade dispute with the United States are pressuring growth.

Some economic indicators in July registered slower than expected growth, spurring concern over the government's determination to promote the campaign against debt.

Officials dispelled such worries and said the government will control the pace of deleveraging to ensure economic growth remains stable.

"The overall economic fundamentals remain sound," said Ning Jizhe, vice-chairman of the commission, while "there are imbalances in the economy. The government will introduce more targeted policies to keep the economy afloat."

Against the backdrop of trade tensions, the government has taken some preemptive steps.

Measures include preferential tax policies for enterprises and measures to lower the cost of borrowing for small and medium-sized companies.

The government also pledged to appropriately control the debt reduction pace and to promote targeted measures to dissolve debt risks of different kinds, Chen said.

Bad debt incurred by poorly operated enterprises, or "rotten apples", will be cleared from the market, and for debt of promising companies, or "good apples", market-based measures will be used to help lower their burden, Chen said.

Yu Yongding, a senior researcher at the Chinese Academy of Social Sciences, said a more diverse approach to different kinds of debt will be helpful in lowering risk.

"Household debt still remains sustainable," he said. "There is not too much to worry about if the pace of debt growth is stabilized."