China's debt problem explained. (2024)

FAQs

What is causing China's debt crisis? ›

Many pundits blame governments whenever economies crash, but the real cause of China's slump is the long period of fast growth that piled up vulnerable and unsustainable debts. The higher they fly, the harder they fall.

Key Takeaways. China invests heavily in U.S. Treasury bonds to keep its export prices lower. China focuses on export-led growth to help generate jobs. To keep its export prices low, China must keep the renminbi low compared to the U.S. dollar.

If China called in all of its U.S. holdings, the U.S. dollar would depreciate, whereas the yuan would appreciate, making Chinese goods more expensive.

China (Mainland)

China is the U.S.'s second-largest foreign creditor, owing more than $1 trillion of U.S. debt. With 1.4 billion people, the world's second-largest economy and rapid economic growth, mainland China is an undisputed economic powerhouse [source: World Bank].

[2] A report by the credit rating agency S&P Global in 2022 estimated that 79 per cent of corporate debt in China was owed by SOEs (the IMF does not break down the proportion of debt owed by SOEs).

China's Problems Will Hit Other Markets

My firm, Enodo Economics, estimates that the likely overall credit losses amount to between 37 percent and 42 percent of GDP while deflation is the worst it has been since the 1997 Asian financial crisis.

How bad is it? China's debt is more than 250 percent of GDP, higher than the United States. It remains lower than Japan, the world's most indebted leading economy, but some experts say the concern is that China's debt has surged at the sort of pace that usually leads to a financial bust and economic slump.

China owns 384,000 acres of American agricultural land. That's a 30% increase just since 2019. And on top of that, they own land near an air force base in North Dakota.

A large amount of that land is owned by foreign adversaries, including China. According to the USDA, Chinese companies affiliated with the Chinese Communist Party (CCP) owned agricultural land in 29 states, totaling 346,915 acres, a significant amount of which is in close proximity to U.S. military bases.

The causes of the crisis included high-risk lending and borrowing practices, burst real estate bubbles, and hefty deficit spending.

Why is China facing a crisis? ›

Property crisis

Many of the risks facing China's economy stem from its ailing real estate sector. For decades, China's economy was dependent on a booming property market driven by speculative investment returns. However, this growth was largely driven by debt.

The collapse of Evergrande, once the world's most valuable real estate company, marked the beginning of China's real estate crisis. Founded in 1996, Evergrande targeted the upper-middle class, but excessive borrowing and overbuilding led to its downfall.

This dataset highlights Pakistan and Angola as having the largest debts to China by a wide margin. Both countries have taken billions in loans from China for various infrastructure and energy projects. Critically, both countries have also struggled to manage their debt burdens.