China’s Debt Hits $4.56 Trillion

by on December 26, 2013 5:31 pm BST

The debt in China has reached $4.56 trillion which is mostly the cause of local government’s excessive lending. It has been hard to accurately determine the debt problem, but The Chinese Academy of Social Sciences reports that local government debt has reached 19.94 trillion yuan, or $3.3 trillion. The quickening pace of the Chinese debt is what is shocking, and the total government is said to have reached 53 percent of the gross domestic product (GDP), or 27.7 trillion yuan ($4.56 trillion).

The pace at which debt is growing is causing worry from the international community which heavily relies on China to deliver growth expansion. Reports indication local government debt doubled from three years ago. China’s debt is smaller than many of the largest developed nations, but the easy credit taken out to combat China’s slowing growth prospects is beginning to show its ugly side.

The Chinese central planners have said that the debt is manageable and look to establish debt risk management through new reforms being implemented by the government. However, it is unlikely to see any changes due to the need to expand the economy by, what seems to be, any means necessary. According to Societe Generale economist Wei Yao, “given this, we do not expect China’s domestic credit environment to improve anytime soon and as a result growth deceleration will probably resume.”

Even those bullish on the Chinese economy only see it growing 7.6 percent next year, while it is likely that growth will trend lower to seven percent. In relation to the last couple years, China grew 7.8 percent (2012), 9.3 percent (2011) and 10.4 percent (2010), respectively.

China will have its hands full in the coming year as the country’s reliance on easy credit will be tested. Recently, the People’s Bank of China (PCOC) has been forced to inject cash into the financial system to keep rocketing rates at bay, while the central bank maintains that will be reluctant to do so in the future.