BEIJING’S SOARING DEBT WOES

China borrowings seen hitting 327pc of GDP by 2022, reducing chances of avoiding crisis

CHINA’S debt is poised to soar over the next five years, severely reducing the chances the nation can avoid a financial crisis.

Bloomberg Economics economists Fielding Chen and Tom Orlik estimate China’s total debt will reach 327 per cent of gross domestic product (GDP) by 2022, double the level in 2008. That will put China among the most indebted countries in the world.

“The rapid growth and high level of China’s debt have already placed them in the danger zone for a financial crisis,” said the economists in a note published yesterday.

“Adding debt equivalent to almost 70 per cent of GDP in the next five years wouldn’t mean a crisis is inevitable, but it would severely reduce the chances of avoiding one.”

Central bank governor Zhou Xiaochuan, who has hinted he’ll soon retire, recently warned of the risks in company and household debt, saying that corporate borrowing was “very high” and that the nation needed to be on guard against excessive optimism that could spark a sudden drop in asset prices.

The Bloomberg estimates of future debt levels are based on a new model that assumes a moderate slowdown in growth, continued rebalancing of the structure of the economy toward services, a stabilisation in the credit intensity of growth, and continued large-scale write-offs of bad loans.

Economic expansion is expected to slow to 5.8 per cent in 2022 from 6.7 per cent in 2016, said the economists. Nominal growth, more relevant for calculating the debt-to-GDP ratio, is expected to edge down to 7.9 per cent in 2022 from eight per cent in 2016, they said. Bloomberg