China Debt-to-gdp Ratio Tops 300% as Mark Williams Warns Debt Surge
China's china debt-to-gdp ratio has doubled since 2010 and now tops 300%, according to Capital Economics. Mark Williams, the firm's chief Asia economist, said China’s current level of indebtedness puts it in a league of its own.
The total borrowing figure excludes the financial sector and now stands above the U.S., the eurozone, the U.K. and other emerging markets. Aside from some smaller economies, only Japan carries more debt.
Mark Williams on China
Williams wrote in a note late last month that borrowing by companies and by the central and local governments has continued to far outpace GDP growth. He said nearly 40% of outstanding debt is now owed by the public sector, including local government financing vehicles.
China's business debt has doubled since 2019 while revenues are only 30% higher. Nearly one-third of Chinese companies are losing money, a sign that borrowing is growing faster than the cash those firms bring in.
Local Government Debt
Over the weekend, authorities vowed to ramp up efforts to ease local government debt risk with a restructuring program designed to help borrowers meet payments on schedule. Officials also called for preventing new hidden borrowing, strengthening the domestic economy and advancing infrastructure.
The pressure on local borrowing sits alongside a three-year stretch of deflation and a slowing state-led growth model. Households have borrowed less after being battered by the real estate market's collapse, while local governments have often used low-cost loans to back favored industries such as AI, electric vehicles and robotics.
Debt Burden Compared
China's debt-to-GDP ratio has increased by more than 120% of GDP over the past 15 years. The U.S. last year had total public and private debt at about 265% of GDP, while federal debt was more than 100% of GDP for the first time since the immediate aftermath of World War II.
For companies tied to China's borrowing cycle, the immediate message is blunt: debt is still rising faster than output, and the public sector is carrying a bigger share of the load than it did in 2010.
