China's debt problem explained. (2024)

FAQs

China's debt problem explained.? ›

In addition, household debt - mostly mortgages - is 61 per cent of GDP. Altogether, China's gross national debt is over 300 percent of GDP. A high debt burden constrains the government's fiscal firepower, preventing it from unleashing bolder stimulus and weakening its effectiveness when implementing support measures.

Rising real estate prices have slowed consumer demand, especially young people hoping to buy their first home. This is one reason for the recent precipitous drop in marriage and birth rates. Brick-and-mortar businesses are plagued by the high cost of property, driving more and more business to the internet.

China focuses on export-led growth to help generate jobs. To keep its export prices low, China must keep the renminbi low compared to the U.S. dollar. U.S. debt to China comes in the form of U.S. Treasuries, largely due to their safety and stability.

Consequences of Owing Debt to the Chinese

The reality is very different than the rhetoric. If China called in all of its U.S. holdings, the U.S. dollar would depreciate, whereas the yuan would appreciate, making Chinese goods more expensive.

The economy has suffered everything from a property slump to enormous public debt and high youth unemployment. And given China's rapidly ageing population and other factors such an increased trade protectionism abroad, its long-term economic prospects seem pretty grim...

It is now unclear whether China's GDP will ever surpass the U.S. and nations around the world are rethinking their ties to Beijing and the debt trap that is the Belt and Road Initiative. Meanwhile, China's population growth is done. Chinese entrepreneurs are leaving the country. Optimism is dimming among Chinese youth.

How bad is it? China's debt is more than 250 percent of GDP, higher than the United States. It remains lower than Japan, the world's most indebted leading economy, but some experts say the concern is that China's debt has surged at the sort of pace that usually leads to a financial bust and economic slump.

Debt as a share of GDP has risen to about the same level as in the United States, while in dollar terms China's total debt ($47.5 trillion) is still markedly below that of the United States (close to $70 trillion). As for non-financial corporate debt, China's 28 percent share is the largest in the world.

The public owes 74 percent of the current federal debt. Intragovernmental debt accounts for 26 percent or $5.9 trillion. The public includes foreign investors and foreign governments. These two groups account for 30 percent of the debt.

What country owes the US the most money? ›

All values are adjusted to 2023 dollars. As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).

China has offloaded USD 22.7 billion US treasury bills recently over concerns over security and a further delay to expected interest rate cuts by the American Federal Reserve, amidst its intensified strategic rivalry with Washington.

"China owns $870 billion in U.S. Treasuries that finance our debt. And they either own or have a huge portion of the Chicago Stock Exchange, AMC movie theaters, General Electric's appliance division, General Motors, and Smithfield Foods just to name a few."

The United States pays interest on approximately $850 billion in debt held by the People's Republic of China. China, however, is currently in default on its sovereign debt held by American bondholders.

China's real problem is corporate debt. The ratio of nonfinancial corporate debt-to-GDP jumped to 116% from 93% in the three years after the stimulus began, and then continued to increase. Now at about 153%, China's corporate debt-to-GDP ratio is one of the highest in the world.

In addition, household debt - mostly mortgages - is 61 per cent of GDP. Altogether, China's gross national debt is over 300 percent of GDP. A high debt burden constrains the government's fiscal firepower, preventing it from unleashing bolder stimulus and weakening its effectiveness when implementing support measures.

Real estate collapse, trade war with the US, a crackdown on entrepreneurs, and extended Covid lockdowns have stalled the prosperity engine. Chinese incomes are still rising, but under Xi gains have been the slowest since the late 1980s. The property crisis is hammering household wealth.

On top of the property crisis, China is also grappling with local government debt, a stock market rout and a decline in exports and foreign direct investment amid geopolitical tensions.

No doubt China faces many structural and other challenges: slumping productivity, a shrinking labor force, restrictions on the transfer of technology imposed by the United States and other countries, an ongoing real estate bubble's correction, elevated unemployment among younger workers, and a leadership that seems to ...

China's property downturn is eroding the balance sheets of the nation's largest state banks. China's protracted property downturn is eroding the balance sheets of the nation's largest state banks as their bad loans creep up.