China’s economy is incapable of handling the debt burden, alleges USCC

Beijing – The US Congressional Commission has blamed that the debt burden on China’s economy is consistently soaring. Moreover, China’s financial system does not have the strength to bear this burden. In its annual report, the ‘US-China Economic and Security Review Commission’ (USCC) pointed at the enormous debt burden on China. A few days ago, US Federal Reserve warned that the crisis in the China’s real estate sector might hit the Chinese economy. Besides, it may severely impact the global economy, including the US as well. Since then, this is the second time that the US administration has cited the dangers posed to China’s economy.

‘By the end of the fourth quarter of 2019, China’s total credit reached 262.9% of its GDP at $37.2 trillion (RMB 259 trillion), up from 178.8% at the end of 2010,’ a data reported by the Bank for International Settlements stated. ‘China’s debt growth accelerated between the end of 2019 and 2020, rising to 289.5% of GDP,’ the US Commission informed about the growing Chinese debt.

After the global recession of 2008, China had made available a large amount of financial aid in debt to recover its economy. Later, since 2016, China began the process of reducing the debt burden on its economy. However, this process failed and instead continued to increase the debt burden. After the 2008 recession, the debt crisis that has risen with the financial assistance provided has made China’s economy and an internal system unable to bear the burden. The US Commission has drawn attention to the issue. The US Commission also claimed that China relied on financial aid again to recover its economy in the wake of the Coronavirus pandemic.

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This has led to a consistent increase of debt on the Chinese economy. Last year, former Chinese Finance Minister Lou Jiwei also expressed concern about the debt crisis, states a US Commission report. The debt burden on the Chinese government poses a threat to financial stability and economic security, Jiwei said.

China had approached a policy of achieving economic growth at any cost in the last few decades. Thus, though China has progressed rapidly, it emerges that it has to pay the price in the form of a debt burden. Developments in China’s economy over the past year and warnings of fall issued by financial institutions and economists confirm this. The US Commission’s warning seems to be part of the same issue.

China’s private sector currently has a debt burden of $27 trillion that amounts to about 160% of GDP. Information about the hidden debt in China’s economy is also coming to the fore. It reveals that the debt burden on projects raised through local administrations in China is getting out of control. According to media reports, the hidden debt is estimated to be huge, about $8.3 trillion. According to economists at Nomura, the figure is more than 40% of China’s GDP.

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