Does China Still Have a Debt Problem?
Alexander Hammer (汉力山)
Director of Economic Analysis Unit, International Trade Administration
This briefing summarizes the origin, rise, and implications of China’s persistent domestic debt problem. With its $588 billion economic stimulus package during the 2008-09 global financial crisis, China’s government attempted to shore-up domestic infrastructure investment and offset the effects of diminishing global demand for its exports. To do so, Chinese authorities made new capital available and relaxed borrowing requirements for many local firms, most of which were state-owned enterprises (SOEs). These SOEs did not use the newly borrowed capital as efficiently as their private sector counterparts, resulting in overinvestment (e.g., steel and aluminum sectors), low investment returns, and frequent defaults. This misallocation of capital and surging debt in 2009-16 increased China’s financial risk exposure and inhibited China’s economic growth potential, as funds were increasingly diverted from new investment to debt servicing. Through policy measures, Chinese authorities have arrested the growth of debt in 2017, lowering China’s high financial risk exposure. However, the persistently large stock of corporate (and now household) debt is still likely to inhibit China’s long-term economic growth and affect U.S. firms.
Director of Economic Analysis Unit, International Trade Administration
6 年Thank you Ashley and feel free to send me your findings if they are public. Good luck on your research
U.S. Mission to the Conference on Disarmament
6 年Great article - I'll be referencing some of your findings in a paper on the future of the Sino-American nuclear balance. Interesting potential implications for the feasibility of continued military modernization funding.