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.

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.

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.

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.

If China “dumped” USA treasuries, they would take a serious monetary loss. The price of the treasuries would drop, effective raising the return for those who bought the bonds.

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%.

Much of the recent lending by Beijing consists of loans from China's central bank to the central banks of countries that took out Belt and Road Initiative loans. Another large and growing chunk is from state-controlled Chinese commercial banks, working in conjunction with groups of Western banks.

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.

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.

The international buying appetite has been falling over the past 10 years (dropping from 40% to the current 30%). The major international owners of US debt include Japan ($1.1T), China, UK, Belgium, Switzerland, Cayman Islands and smaller amounts from the rest of the world.

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.