China’s debt-to-GDP ratio should decrease

According to media reports, China’s debt-to-gross domestic product (GDP) ratio is likely to shrink this year due to growing concerns about the sustainability of rising local government borrowing.

Total debt as a percentage of GDP increased at the end of 2022 from 262.8 percent to 273.2 percent, according to Bloomberg, citing interpretations in the text published by the Economic Daily.

The text contains data from a report compiled by the National Institute for Finance and Development (NIFD). The interpretations come at a time when concerns about the finances and debts of local administrations are increasing. The income achieved by those administrations decreased last year while the policy of zero tolerance and ongoing decline in property values was implemented, while their consumption continued to grow.

Economists, on the other hand, call on the central government to borrow more to help the country’s economic recovery this year and reduce the debt burden on local administrations.

Although the debt-to-GDP ratio has increased since the pandemic’s start, growth was still significantly lower than in other major economies, meaning China used a relatively small amount of debt to fuel economic recovery, the text said.

Increase in GDP

China’s debt-to-GDP growth last year led to slow economic growth, according to the NIFD report referenced in the text. The coefficient for the government sector rose faster than expected, while the increase in corporate debt increased with the growth in the number of loans granted by banks to firms.

The household sector’s ratio stayed the same because assets dropped and the epidemics and measures to combat the coronavirus affected people’s income, according to the NIFD.

The economy’s debt ratio rose by 24 percentage points in 2020 before falling by eight percentage points the following year, when economic growth recovered, according to NIFD data.