China's Debt-to-GDP Ratio Surges to 317 Percent
Michael Pettis at China China Financial Markets comments on China's debt in a Tweet Thread.
- For those interested in China’s debt profile, this article has a lot of information, to which I have added some. According to China’s National Institution for Finance and Development, China’s debt-to-GDP ratio rose 6 percentage points.over 2019 to 245% by the end of the year.
- According to the Institute of International Finance – which includes categories of debt not counted by NIF – China’s debt-to-GDP ratio rose 11 percentage points in 2019 to 310%, and rose a further 7 percentage points this year.during Q1 to 317%.
- As high as these increases are, my own estimates are that either debt-to-GDP measure will rise by at least 12-18 percentage points in 2020. I would add four additional points.
- First, almost everyone agrees that some categories of debt are not fully accounted for in the data, so both numbers are likely to be understated.
- Second, because China’s GDP measure is not comparable to the GDP of other countries, but overstates it on a relative basis (see the essay below), its debt-to-GDP ratio should .be adjusted upwards to make it comparable.
- Third, debt data for any country always excludes financial debt because to the extent that a financial system is solvent, it’s financial assets and financial liabilities can be netted out.
- But because the liabilities of Chinese banks probably exceed the real economic value of their assets, the difference represents a contingent claim on the government that is not included in any of the debt data.
- Finally, unlike most governments, Beijing and local governments have substantial asset positions (real estate and SOEs). These can in principle be used to absorb some of the debt-servicing costs, although to date this has proven politically very difficult.
- China’s foreign debt has risen sharply from $0.55 trillion dollars ten years ago to $2.05 trillion today, according to this article, but at less than 15% of GDP, and equal to 2/3s of visible reserves, I think it is still quite manageable.
Note: I reformatted the thread to keep key ideas in the same numbered point. In doing so, I increased the number of points by one.