China’s total borrowings were more than double its GDP last year, a government economist said, adding that debt linkages between the state and industry could be “fatal” for the world’s second-largest economy.
The nation’s debt has ballooned as Beijing has made getting credit cheap and easy in an effort to stimulate slowing growth, unleashing a massive, debt-fueled spending binge.
While the stimulus might help the nation post better growth numbers in the near term, analysts said the rebound might be short-lived.
China’s borrowings hit 168.48 trillion yuan (US$25.6 trillion) at the end of last year, equivalent to 249 percent of the economy’s GDP, Li Yang (李楊), a senior researcher with top government think tank the China Academy of Social Sciences (CASS), told reporters on Wednesday.
The number, while enormous, is still lower than some outside estimates.
Consulting firm the McKinsey Group has said that the nation’s total debt was likely as high as US$28 trillion by mid-2014. CASS in a report last year said China’s debt amounted to 150.03 trillion yuan at the end of 2014, according to previous Chinese media reports.
The most worrying risks lie in the non-financial corporate sector, where the debt-to-GDP ratio was estimated at 156 percent, including liabilities of local government financing vehicles, Li said.
Many of the companies in question are state-owned firms that borrowed heavily from government-backed banks and so problems with the sector could ultimately trigger “systemic risks” in the economy, he said.
“The gravity of China’s non-financial corporate [debt] is that if problems occur with it, China’s financial system will have problems immediately,” Li said.
He added that the problem would also affect state coffers, because Chinese banks are “closely linked to the government.”
“It is a fatal issue in China [and] because of such a link, it is probably more urgent for China than other countries to resolve the debt problem,” he said.
Speaking earlier this week, IMF first deputy managing director David Lipton also singled out China’s corporate borrowing as a major concern, adding that addressing the issue is “imperative to avoid serious problems down the road.”
Despite the concerns, China is having difficulty kicking its credit addiction.
On Wednesday, the People’s Bank of China announced that new loans extended by banks jumped to 985.5 billion yuan last month, up from 555.6 billion yuan in April.
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