Joggers in Shanghai, China on April 10, 2021.
Qilai Shen | Bloomberg | Getty Images
China’s debt has grown dramatically over the past decade and is one of the biggest economic challenges facing the ruling Chinese Communist Party, which turns 100 this week.
Beijing has identified skyrocketing debt as a potential threat to economic stability, and in recent years has attempted to reduce the country’s dependence on debt for growth. But that deleveraging effort came to a halt for much of last year due to Covid-19.
Last year’s pandemic hit China’s economic growth and prompted authorities to make it easier for businesses to get loans. As a result, China’s debt, measured by the size of its economy, reached record levels in 2020.
Here’s a look at China’s growing debt over the years and its effects on economic growth.
Record debt levels
China quickly got into debt following the global financial crisis of 2007 and 2008, when authorities distributed a massive stimulus package largely funded by bank loans.
The country’s debt level stabilized for several years before accelerating again to a record high of nearly 290% of gross domestic product in the third quarter of last year, according to Bank data. international regulations.
But China is not the only country to have recorded an increase in its debt in 2020.
Other large economies such as the United States, Japan and those in Europe have also seen their debt-to-GDP ratios rise, according to BIS data. It happened as governments around the world increased spending to help businesses and households overcome the challenges caused by the pandemic.
But the composition of China’s debt is different from that of the United States and Japan.
The corporate sector in China accounted for a large chunk of total debt at over 160% of GDP, according to BIS data. Meanwhile, public debt made up the largest share of total debt in the United States and Japan, according to the data.
As its economy recovers from the pandemic, China has has renewed its multi-year efforts to control its debt in recent months, after stopping for much of last year.
This effort has yielded some results. China’s total social finance stock, a large measure of credit and liquidity in the economy, increased by 11% compared to a year ago at the end of May – slowing down compared to growth of 11.7% a month earlier.
Economists at British bank Barclays predict that credit growth in China will be between 10% and 10.5% by the end of the year compared to 13.3% at the end of 2020.
China’s economic boom
A debt-fueled economic boom in the aftermath of the global financial crisis has helped China will overtake Japan as the world’s second-largest economy – measured in nominal terms – in 2010. China has remained in this position since then, just behind the United States.