No, China Doesn’t Really Have a Debt Crisis
Beijing is gun-shy about fiscal stimulus due to concerns more debt will build up. This thinking is muddled.
The Chinese government owns a lot of public-sector assets that it can sell to reduce debt.
Photographer: Raul Ariano/BloombergChina is sitting on a lot of debt after a multi-decade infrastructure boom. Public borrowings1 hover at around 120% of gross domestic product, while a broad measure of the fiscal deficit exceeds 10%. These statistics, coupled with a slowing economy, have ignited anxiety in Beijing over whether a debt crisis is looming. Any large-scale stimulus will only lead to more buildups and ultimately threaten financial security, the thinking goes.
As a result, Beijing has been gun-shy even while recognizing in late September that more fiscal spending is needed to meet its growth target. Since then, only a 10 trillion yuan ($1.4 trillion) local debt swap program has been announced. Regional governments will be able to save some money on interest payments, which in turn allows them to settle overdue bills to suppliers and unpaid salaries to civil servants. But this initiative offers no new borrowings and therefore should not be counted as fiscal stimulus.