[Brief] China debt reaches record high

Indonesia president Joko Widodo shakes hands with China President Xi Jinping on his visit to Jakarta in April 2015Indonesia president Joko Widodo shakes hands with China President Xi Jinping on his visit to Jakarta in April 2015. Photo courtesy Indonesian Ministry of Trade. PHOTO: Indonesian Ministry of Trade (www.kemendagri.go.id)

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China’s Gross Government debt as a percentage of GDP has risen to a historical high of 43.9%. Compared to 41.12% last year, this is higher than the long-term average of 24.25%.

China currently has the most corporate debt in the world. BIS estimates the figure to be 235%. China currently makes up 50% of the global emerging market domestic debt. Along with China, Brazil, and Turkey are also nations with increasing debt burden.

In August 2016, China’s central bank shared they will take a careful and considered approach to using monetary tools. Xinhua, the state’s media also shared that new rate cuts this year are unlikely. Given this position, some analysts view that the Chinese market will likely be flat for the rest of the year in 2016. The Chinese deposit rate is already at the lowest point in the decade. Perhaps there are limited monetary options on hand.

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The growth in debt seems to be supported by the increase in output (a measure of economic growth). But some observers of the Chinese economy have questioned the accuracy of Chinese figures. Some worry that output figures may be distorted by local and provincial officials to meet government quotas.