Why China has a giant pile of debt?
China's lending to developing countries is a small portion of its overall debt; the debt crisis in China arises from issues in the real estate sector and borrowing by local governments, leading to a lack of funds for public services.
Most of this debt came from building infrastructure, much of which is unlikely to generate revenues sufficient to pay off the obligations. With China's trend growth rate notably lower now than it was, it leaves a burden over the long haul.
[2] A report by the credit rating agency S&P Global in 2022 estimated that 79 per cent of corporate debt in China was owed by SOEs (the IMF does not break down the proportion of debt owed by SOEs).
China's government bears much blame for “causing” this crisis, but the scale of the crash is largely based on private incentives to borrow and lend. When the economy seemed excessively overheated, Beijing actually assisted the bears with its Three Red Lines policy in August 2020.
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.
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.
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.
U.S. debt offers the safest haven for Chinese forex reserves, which effectively means that China offers loans to the U.S. so that the U.S. can keep buying the goods China produces.
In total, other territories hold about $7.4 trillion in U.S. debt. Japan owns the most at $1.1 trillion, followed by China, with $859 billion, and the United Kingdom at $668 billion. In isolation, this $7.4 trillion amount is a lot, said Scott Morris, a senior fellow at the Center for Global Development.
| Characteristic | National debt in relation to GDP |
|---|---|
| Macao SAR | 0% |
| Brunei Darussalam | 2.06% |
| Kuwait | 3.08% |
| Hong Kong SAR | 4.27% |
Is China's economy actually in trouble?
Its economy has become weighed down by spiraling government and commercial debt, a ticking time bomb that finance experts fear could have reverberating effects across the global economy. That, in turn, is fueling economic unease internally, dampening consumer spending as well as hiring and business investment.
Actual growth seems below the official figures; there is substantial deflation; the housing market has yet to stabilize; and the domestic stock markets have fallen significantly. Domestic confidence is flagging, and foreign investment in 2023 was at a three-decade low.
The United States is the undisputed heavyweight when it comes to the economies of the world. America's gross domestic product in 2022 was more than 40% greater than that of China, the world No. 2. Even more striking, U.S. GDP was over five times that of the next two largest economies, Japan and Germany.
As a result, totals from January 2023 are lower than reported. As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).
Many people believe that much of the U.S. national debt is owed to foreign countries like China and Japan, but the truth is that most of it is owed to Social Security and pension funds right here in the U.S. This means that U.S. citizens own most of the national debt.
The value of U.S. Treasury securities held by residents of Russia amounted to 33 million U.S. dollars in June 2023, the lowest over the period under consideration. Furthermore, in March 2020, the figure decreased sharply to 3.85 billion U.S. dollars, down from 12.6 billion U.S. dollars one month prior.
China loaned a total of $143 billion to African governments and state-owned enterprises between 2000 and 2017. In 2020, the African countries with the largest Chinese debt were Angola ($25 billion), Ethiopia ($13.5 billion), Zambia ($7.4 billion), the Republic of the Congo ($7.3 billion), and Sudan ($6.4 billion).
Officially, non-performing loans at China's commercial banks total around 1.5 trillion yuan. But some analysts say the bad debt is as much as 14 times higher because lenders use various methods to conceal the true figure.
China's economy is at a turning point. An old economic model underpinned by heavy investment in infrastructure and real estate is crumbling. Growth is slowing and prices are falling, raising the specter of a Japan-style slide into stagnation.
In the 15 years since, China's debt-to-GDP ratio has doubled to a whopping 280% , opens new tab, with the bulk of liabilities held by local government financial vehicles (LGFVs).
Why does the US owe China a lot of money?
But the most important reason is that China receives a surplus of U.S. dollars due to the trade imbalance between the two countries, as China exports more to the U.S. than it imports. But, Chinese companies and their workers need to be paid in China's local currency.
| Characteristic | National debt in relation to GDP |
|---|---|
| Macao SAR | 0% |
| Brunei Darussalam | 2.06% |
| Kuwait | 3.08% |
| Hong Kong SAR | 4.27% |
It began rising at a fast rate in the 1980's and was accelerated through events like the Iraq Wars and the 2008 Great Recession. Most recently, the debt made another big jump thanks to the pandemic with the federal government spending significantly more than it took in to keep the country running.
Related information about Russia Government Debt: % of GDP
In the latest reports, Russia National Government Debt reached 285.4 USD bn in Dec 2023. The country's Nominal GDP reached 494.7 USD bn in Mar 2023.
- Japan. Japan has the highest percentage of national debt in the world at 259.43% of its annual GDP. ...
- United States. ...
- China. ...
- Russia.
