Date
18 November 2017
China has realized that boosting growth through ever-increasing debt dependency is unsustainable. Photo: Bloomberg
China has realized that boosting growth through ever-increasing debt dependency is unsustainable. Photo: Bloomberg

China debt tops 250% of national income

China’s outstanding debt has climbed to more than two and a half times the size of its economy, highlighting the huge challenge facing the nation as it seeks to spur growth and avoid a financial crisis, the Financial Times reported.

The debt to gross domestic product ratio in the world’s second-largest economy reached 251 percent at the end of June, up from just 147 percent at the end of 2008, the newspaper said, citing a Standard Chartered Bank estimate.

The rapid debt build-up is more worrying than the country’s debt level since sharp increases in such a short period have almost always been followed by financial turmoil in other economies, the report said.

“China’s current level of debt is already very high by emerging markets standards and the few economies with higher debt ratios are all high-income ones,” Chen Long, an economist at research consultancy Gavekal Dragonomics, was quoted as saying. “In other words, China has become indebted before it has become rich.”

According to Standard Chartered, the United States had a total debt-to-GDP ratio of about 260 percent by the end of last year, Britain’s ratio was 277 percent, while Japan ranked highest at 415 percent.

Following the 2008 global financial crisis, China tried to sustain its rapid economic expansion through massive injection of funds into the economy. But it has now realized that boosting growth through ever-increasing debt dependency is unsustainable, the report said.

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