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How high is the cost of private investment borrowing?
How high is the cost of private investment borrowing? Economic activity data in June showed that private investment has further slowed down. In June, the year-on-year growth rate of investment in fixed assets of the public sector (including state-owned enterprises) further accelerated to 21.2%, while private investment in fixed assets experienced the first negative growth since 2010. Given the structural weaknesses of private investment over a long period of time, it does not fully explain the declining trend of rapid growth this year, and it is difficult to quantify the rise in investment risk premiums. The CICC report focuses on the analysis of the year-to-date private investment financing costs. Variety.
Even conservative assumptions, the annualization of private investment in the second quarter of this yearLending ratesIt may also be close to 10%. The year-to-date monetary policy further loosening is limited – the weighted average lending rate in the first quarter of this year rose by 3 basis points to 5.3% (according to the central bank's monetary policy implementation report). On the other hand, fiscal policy has become more positive, and the proportion of home loans has risen significantly since the fourth quarter of last year. Due to the public sector loan interest rate (3%-4%) andMortgage rates(4.5% or so) are significantly lower than the overall weighted average loan interest rate. A rough calculation can lead to the conclusion that the loan interest rate for private enterprises has risen significantly since the beginning of this year.
Specifically, CICC estimates that the lending rate of private enterprises may have reached 9.9% in the second quarter of this year. It is assumed that the weighted average lending rate in the second quarter is equal to that in the first quarter, and the average lending rate in the public sector is about 90% of the benchmark lending rate. . Considering various new forms of public sector loans, such as policy bank loans and some PPP infrastructure investment loans, the interest rate may be much lower than the loan benchmark interest rate. This assumption is already conservative; although the public sector has a source of funds other than loans, the private sector Investment has always been more fundraising, and the ratio of bank loans may not be the proportion of investment; in addition, due to the slowdown in the second quarter of the money supply and bank balance sheet expansion, and the increase in average interbank lending rates, the second quarter weighted average Loan interest rates may actually be up.
Comparison of average loan interest rates for public and private investment
As the "punitive premium" on private investment lending rates continues to rise, investment in the public sector (including state-owned enterprises) has become the only increment in the fixed assets investment of the whole society, and the proportion of non-government investment has rapidly declined. This is worrying. The report estimates that compared with the loan interest rates of the public sector and state-owned enterprises, the “punitive premium” for private investment interest rates expanded to 6 percentage points in the second quarter, which is 3 percentage points higher than last year. As a result, the proportion of private investment in total fixed asset investment has dropped by 4 percentage points in just six months. What is more worrying is that investment in the public sector (including state-owned enterprises) has become the only growth point for fixed asset investment in June.
In the face of a sharp slowdown in private investment, the government urgently needs to take effective measures to reduce the financing and other costs of private investment in order to increase the efficiency of investment in the entire society and promote balanced development of the economy. The continued increase in the proportion of public sector investment will depress the medium and long-term investment efficiency and growth potential.
According to the report, policies that help boost private investment growth include: lowering the cost of financing private investment and effective tax rates (including value-added tax, income tax or social security contributions), and relaxing the threshold for private investment in some emerging industries. On the other hand, a more coordinated, coherent and market-oriented macro policy formulation and implementation will also help reduce the risk premium of private investment.
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