China’s “Hidden” Debt

25 Feb

Last week in my blog post, I stated that China’s national debt levels stood at 27% of GDP – this figure alone does not seem to be any cause for concern. To compare, Greece’s debt to GDP ratio is estimated to be nearly 160% and even the UK has a ratio of around the 90% mark.

However, China has more debt that is not included in the national figures due to the debt being owed by “local” governments. In fact, all the provinces of the China combined owe a massive 17.9 trillion yuan which is roughly £1.75 trillion. For scale, that’s roughly 120% of the UK’s GDP and even for China, this constitutes nearly a third of their GDP. 

Including their local government debt in their national debt figures takes China’s debt-to-ratio up to 58% – a much more alarming figure. What makes this even more of a concern is the speed at which this debt has increased with local government debt increasing by nearly 20% year-on-year over the last 3 years. Even though China’s GDP has been growing rapidly, over the same period, it’s growth has only been around the 9% mark year-on-year which is clearly not fast enough to keep up with the growing debt problem.

China’s State Council has recognised that this is a major problem and it is expected that local government debt will be top of the agenda at the National People’s Congress (China’s parliamentary session) which begins on March 5th. The primary solution that is expected to be put forward is the opening up of the municipal bond market to local governments and increasing the responsibility of provincial governments for their debt.

 

http://www.bbc.co.uk/news/business-25553058

http://www.economist.com/news/china/21596991-fancy-infrastructure-one-example-local-government-largesse-which-province-deepest-debt

http://www.sfgate.com/technology/businessinsider/article/Local-Government-Debt-And-Environmental-Issues-5254503.php

http://www.globaltimes.cn/content/844637.shtml#.UwzAKvl_uSo

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One Response to “China’s “Hidden” Debt”

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  1. Lexington Libertarian | Drowning In Debt Will the USA Go The Way Of Greece? - February 27, 2014

    […] China’s “Hidden” Debt […]

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