Over the past decade, China’s economic growth has accelerated along with the government debt. The excessive public debt has become a major headache for the country’s authorities. If China’s borrowing keeps rising, the situation could get out of control.
An enormous public debt is already posing a threat to China’s economic stability. The county is trying to halt the pace of its growth at all costs. However, the pandemic has made its own adjustments and debts continue to pile up. Local businesses need loans leaving the government no other choice but to simplify the procedure of obtaining them. As a result, China’s sovereign debt reached an all-time high when it soared by almost 290% of GDP in the Q3 2020. Notably, amid the economic recovery from the crisis induced by the pandemic, lending dropped. The reading is estimated to drop to 10.0-10.5% by the end of this year from 13.3% logged at the end of 2020.
Other major economies have faced similar challenges. In the midst of the pandemic, the United States, Japan, and the European Union actively helped businesses and people cope with their financial struggles, thus expanding debts. Yet, the structure of China’s national debt differs from the rest. Unlike the US and Japan, its corporate sector, rather than the government one, accounts for over 160% of GDP. Such a difference in approach could put an end to China's plans to become the world's largest economy.
