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China's government debt has surpassed 100 trillion yuan for the first time in history. It can be said that a red light has turned on for China's fiscal health. / Courtesy of Economic Daily

China, which is well-known as a major debtor nation, is filled with anxiety due to its government debt that has increased by a staggering twofold over the past five years. Prospects for the situation to ameliorate moving forward appear considerably low. In a word, it seems fair to state that a fiscal emergency has been declared. When synthesizing recent reports from media outlets including the Economic Daily, China is less severe than the United States or Japan, yet remains highly renowned as a substantial debtor nation in its own right. It can be said that China is a proud G2 nation in this field as well. If the so-called triple debt of the government, corporations, and households officially reaches around 300% of the gross domestic product (GDP), it must truly be deemed so.

Nevertheless, even until about five years ago, there was still some breathing room regarding government debt. It stood at around 50 trillion yuan (approximately 1,135 trillion won), failing to reach even 50% of the GDP. However, when taking this year's first half as the benchmark, the story changes drastically. It is analyzed to have dealt a direct blow to fiscal health as it exploded to over 100 trillion yuan—easily doubling in a matter of five years. It must be considered certain that the figure has reached around 80% relative to the GDP. For Chinese economic authorities, this can be described as a crisis phase faced for the very first time in history.

If the hidden debt of local governments, which is known to amount to up to 70 trillion yuan, is factored in here, the situation could become considerably grave. The government’s debt-to-GDP ratio would skyrocket vertically up to 160%. It can be said that this becomes second to none compared to the United States or Japan. Regarding this, an economic commentator in Beijing surnamed Chen, who requested anonymity, warned that the situation could flow toward a significantly difficult direction, stating, "If the government’s debt-to-GDP ratio has reached 160%, the situation must truly be considered extraordinary. It imposes a substantial burden on economic operations."

In fact, when recalling the reality where corporate debt has reached 175% relative to the GDP, it can be said that this is by no means an understatement. If the aggregate of government and corporate debt comes to reach 335% of the GDP, it is perfectly fine to assert as such. Furthermore, this is even more the case when adding household debt, which has been creeping upward recently. The triple debt is highly likely to easily exceed 400% relative to the GDP. Rumors that it is close to 600% of the GDP can absolutely not be dismissed as groundless.

China is targeting a growth rate of 4.5 to 5% this year. Considering the fact that it has put forward a 5% growth target annually, it can be said that the target was set considerably conservatively. Reasons are manifold. Sluggish domestic demand, overproduction, and the normalization of deflation (falling prices amidst economic stagnation) are picked as major obstacles. However, when recalling the fact that government debt has exploded over the past five years, this issue must also be mentioned as a reason. While the same would apply to the corporate and household sectors, it appears that China must direct exceptionally special attention toward the management of its government debt. Otherwise, the dream of becoming the G1 could falter to a significant degree.

                                                                                                          Hong Soon-do