China’s Debt Crisis Worsens as Borrowing Far Outpaces Economic Growth
China’s total debt-to-GDP ratio has surged past 300%, far exceeding that of the United States, the eurozone, and other major economies, according to recent analyses. This alarming trend highlights the fragility of China’s state-led growth model, which has been slowing in recent years amid collapsing real estate markets and escalating borrowing by both corporations and local governments. With nearly 40% of outstanding debt owed by the public sector, including local government financing vehicles, China’s debt burden is now described as being in "a league of its own."
“China’s current level of indebtedness puts it in a league of its own,” said Mark Williams, chief Asia economist at Capital Economics.
While U.S. federal debt has also reached significant levels, total public and private debt in the U.S. has declined since pandemic-era highs, now standing at 265% of GDP. In contrast, China’s debt ratio has doubled since 2010, driven by corporate borrowing that has outpaced revenue growth. Creditors’ continued rollover of loans to struggling firms exacerbates overcapacity and deflation, further straining the economy. Beijing has pledged to address local government debt risks, but its reliance on export-led growth and support for manufacturers continues to fuel overproduction and economic imbalances.