China's debt problem explained. (2024)

FAQs

Why is China's debt a problem? ›

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.

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.

Analysts estimate that two-thirds of corporate debt is in the hands of China's sprawling state-owned enterprises, many of which are unprofitable and inefficient.

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.

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.

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.

It's going to put it into bonds of other countries. It will have to buy other currencies in order to invest in those countries' bonds. So US interest rates will no doubt rise as the supply of US Treasury bonds suddenly increases and the dollar will fall as China moves a lot of money out of dollars.

China owns 384,000 acres of American agricultural land. That's a 30% increase just since 2019. And on top of that, they own land near an air force base in North Dakota.

Japan and China have been the largest foreign holders of US debt for the last two decades. Japan and China held almost 50% of all foreign-owned US debt between 2004 and 2006. However, this has declined over time, and as of 2022 they controlled approximately 25% of foreign-owned debt.

Foreign countries buy US Treasury securities since they are considered as one of the most secure assets. Among other countries, Japan and China have continued to be the top owners of US debt during the last two decades.

Who has the most debt on earth? ›

United States. The United States boasts both the world's biggest national debt in terms of dollar amount and its largest economy, which resolves to a debt-to GDP ratio of approximately 128.13%.

Singapore is one of Asia's major financial centers. It is also one of the most prosperous countries on the planet. And all this has been achieved without taking on any meaningful public debt. In fact, very much like Norway, Singapore has more assets than debt.

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.

The case of debts arising from World War II is somewhat less complicated. At this time only four countries, discussed below, owe the U.S. government debts of any size arising from World War II programs to aid our allies. Other countries have paid their debts in full.

2019 due to Russia & China selling their Treasury bonds? According to the US Treasury, Russian ownership of US Treasuries was $2.1 Billion in Nov 2022. That's so small an amount it might as well be zero.

Total bad debt climbed 6.16% to 61.6 billion yuan last year. Zhu said bad real estate debt had peaked in 2022, with the bank tightening lending following a so-called whitelist.

China's debt-to-GDP ratio climbs to record 287.8% in 2023 - Nikkei Asia.

In 2023, aggregate local government debt had risen to 92 trillion yuan ($12.58 trillion) and the central government of People's Republic of China ordered its banks to roll over debts in a debt-restructuring. China's gross external debt in 2023 was $2.38 trillion.

The collapse of Evergrande, once the world's most valuable real estate company, marked the beginning of China's real estate crisis. Founded in 1996, Evergrande targeted the upper-middle class, but excessive borrowing and overbuilding led to its downfall.