China’s debt climbed to 237% from its GDP, setting a new record that pushes the country in dangerous waters.
23 Apr 2016 – Financial Times
Beijing has turned to massive lending to boost economic growth, bringing total net debt to Rmb163tn ($25tn) at the end of March, including both domestic and foreign borrowing, according to Financial Times calculations.
Such levels of debt are much higher as a proportion of national income than in other developing economies, although they are comparable to levels in the US and the eurozone. While the absolute size of China’s debt load is a concern, more worrying is the speed at which it has accumulated — Chinese debt was only 148 per cent of GDP at the end of 2007.
“Every major country with a rapid increase in debt has experienced either a financial crisis or a prolonged slowdown in GDP growth,” Ha Jiming, Goldman Sachs chief investment strategist, wrote in a report this year. The country’s present level of debt, and its increasing links to global financial markets, partly informed the International Monetary Fund’s recent warning that China poses a growing risk to advanced economies.
Economists say it is difficult for any economy to deploy productively such a large amount of capital within a short period, given the limited number of profitable projects available at any given time. With returns spiralling downwards, more loans are at risk of turning sour. According to data from the Bank for International Settlements for the third quarter last year, emerging markets as a group have much lower levels of debt, at 175 per cent of GDP.
The BIS data, which is based on similar methodology to the FT, put Chinese debt at 249 per cent of GDP, which was broadly comparable with the eurozone’s figure of 270 per cent and the US level of 248 per cent. Beijing is juggling spending to support short-term growth and deleveraging to ward off long-term financial risk.
Recently, however, as fears of a hard landing have intensified, it has shifted decisively towards stimulus. New borrowing increased by Rmb6.2tn in the first three months of 2016, the biggest three-month surge on record and more than 50 per cent ahead of last year’s pace, according to central bank data and FT calculations.