Foreign media reported that Diana Choyleva, chief economist at Enodo Economics, a British economic research firm, pointed out that China’s local government debt has become the biggest worry, with China’s overall debt to gross domestic product (GDP) ratio having reached 275% by the first quarter of this year, threatening to destroy economic stability.
The report points out that since the global financial crisis in 2008, China’s debt has increased at an average annual rate of about 20%, surpassing the nominal GDP growth rate. According to the Bank for International Settlements (BIS) data, China’s debt ratio has come to 275% in the first quarter of this year, much higher than the 178% in the first quarter of 2010. This situation is unlikely to continue, as China’s debt ratio will soon surpass the peak of Japan’s economic crisis in the 1990s, which later plunged its economy into a prolonged slump.
While attention is being paid to the debt defaults of three state-owned enterprises, including Yongcheng Coal and Power, Brilliance Auto and Ziguang Group, the debt situation of local government financing platforms (LGFVs) deserves more attention. According to statistics, the debt of LGFVs already accounts for about 10% of China’s GDP, and nearly a quarter of them or about RMB 2.5 trillion will mature in 2021.
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