China‘s total debt load over 280% of GDP, raising economic risks

Sep 16, 2015, 08:35 am

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By Hong Soon-do, Beijing correspondent, AsiaToday - China is facing a serious situation with its bad debt problem following its stock bubble. At any moment, things could go even worse than now which shows disappointing economic indicators.

China's overall debt load is facing a serious situation. Corporate debt is the biggest problem. The situation of Hebei Steel, which is recently experiencing difficulties with excessive borrowing management, shows the hard realities./ Source from search engine Baidu

According to economic sources in Beijing on Tuesday, China's total debt to GDP, which includes government, corporate and household debt, is 250% in average and up to a whopping 280% at maximum. Converting it to US dollars would amount to approximately 27.5 to 30 trillion dollars. China's foreign reserves, which stands at $3.65 trillion, cannot be a comfort to the country, obviously.

Local government and corporate debt is quite a serious problem. Each of them accounts for about 40% of the total. Their debt is not even well controlled as the central government's. Besides, corporations, whose biggest goal is to make profits, have increased their debt load due to the recession. Total debt at 1,003 Shanghai-traded firms rose 18% in the last 12 months, the fastest pace in three years, to a record $136 billion. The debt-to-common equity ratio has risen to 123.1% in 2015 from 88.7% back in 2010. With the current economy so bad, it's clear that things will go worse next year.

Just like what Chinese Premier Li Keqiang said, the fundamentals of the Chinese economy are sound. Debt isn't causing a bigger problem yet. However, things will be different if the debt increases. It will give a substantial burden on the economy. Things would go worse if stock market and real estate bubbles cause trouble as well. China's growing debt could take a heavy toll on Xi Jinping's ambitious New Normal initiative. There's a reason why China's economic authorities are scratching their heads to prepare measures while watching stock bubble as well as debt bubble.

#China #total debt load #GDP #bubble 
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