China’s economy has rebounded, but experts warn that a debt crisis is looming due to high levels of indebtedness and volatile financial markets. The country’s GDP for 2023 was revised upward by 3.4 trillion yuan, bringing the total size of the Chinese economy to 129.4 trillion yuan.
However, the optimism surrounding China’s economic recovery belies significant concerns about the country’s debt situation. According to some estimates, China’s total-country-debt-to-GDP ratio could be as high as 350%, highlighting the need for urgent action to address the issue.
The main concern is that China cannot afford to simply “solve” its debt crisis by relying on domestic parties to absorb the losses. The government must implement painful measures, which has been lacking under Xi Jinping’s rule. As a result, short-term and superficial measures have become increasingly reliant on debt-fueled stimulus, fueling concerns about the sustainability of China’s economic growth.
The situation is further complicated by the rise of capital outflows, with Chinese banks wiring $45.7 billion offshore in November alone. This has led to speculation about whether China can effectively cancel its massive debt burden or if it will lead to a sudden collapse.
Analysts suggest that while China has the tools to control the situation, volatility in Chinese society and Xi Jinping’s increasingly authoritarian tendencies pose significant risks. The country’s vast investment in non-producing assets and military expenditures also raises questions about the long-term viability of its economic model.
Ultimately, the future of US-China relations hangs in the balance, as the implications of China’s financial struggles are likely to have far-reaching consequences for global trade and stability.
Source: https://www.19fortyfive.com/2025/01/chinas-economy-could-soon-face-a-massive-debt-crisis