China is not only loading up economies partnering in its Belt and Road project with an unsustainable pile of debt, back at home it is also struggling to stay afloat from a surging tsunami of debt which has now breached 300% of its GDP.
In a significant development, Washington-based IIF, a private global financial industry association, disclosed, China’s debt become more than 300% of its gross domestic product (GDP) as Beijing increases its fire fighting efforts midst a cooling economy.
China’s total corporate, household and government debt rose to 303% of its GDP in the first quarter of 2019, up from 297% in the same period a year earlier, said the IIF in a report.
“While authorities’ efforts to curb shadow bank lending (particularly to smaller companies) have prompted a cutback in non-financial corporate debt, net borrowing in other sectors has brought China’s total debt to over $40 trillion – some 15% of all global debt,” said the report. “Of note, onshore bond issuance suggests a big pickup in borrowing by local governments and banks this year.”
U.S. trade action has resulted in a decline in the growth of the Chinese economy which slowed to 6.2% in the second quarter, its weakest pace in at least 27 years.
In order to protect jobs and revive investments, China is encouraging banks to lend even more, especially smaller firms. Beijing has also unveiled billions of dollars in tax cuts and infrastructure spending.
On Tuesday, China’s Finance Ministry stated, net bond issued by local governments in the first half of this year totaled to $316.5 billion (2.1765 trillion yuan).
It is to be seen how China will cope with humongous debt risks.
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