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The main purpose of this essay is to discuss the debt problem in China. We all know GDP growth in China has decelerated in recent years from a peak of 10.6% in 2010 to 6.7% in 2016,and the economy-wide debt is continuing to rise as potential growth slows. While ongoing progress on reforms is likely to transform the economy and financial system over time, it’s not likely to prevent a further material rise in economy-debt.
We expect that economy-wide leverage will increase further over the coming years. The planned reform program is likely to slow, but not prevent the rise in leverage. The importance the authorities attach to maintaining robust growth will result in sustained policy stimulus, given the growing structural impediments to achieving current growth targets. Such stimulus s will contribute to rising debt across the economy as a whole.
Due to the deceleration of China GDP Growth in recent years, official GDP growth also adjusted downward gradually and the authorities’ emphasis is progressively shifting towards the quality rather than quality of growth. However, the adjustment is essential to the current Five Year Plan and appeared to be considered by the authorities as important for the maintenance of economic and social stability, especially on the eve of 19th National Congress of the Communist Party of China in fall this year.
According to BIS’ data, the economy-wide debt of the government, household, and non-financial corporation rose to 256% of GDP at the end of 2016. While such debt levels are not common in advanced countries, they tend to be seen in countries which have much higher per capita incomes, deeper financial markets and stronger institution than China’s. But when you compare some debt indicators in China right now with those indicators in the period of Subprime mortgage crisis and European debt crisis, and you will find there’re definitely some problems in China now for us to discuss.
Based on economic theories, this essay establishes a reliable system to exam the debt level in China which makes the reader can easily excess the valuation about the debt situation in China. In the meantime, we also point out a lot of comparable risk indicators for the purpose of be the benchmark for reference here. Finally, we notice the China authorities have taken steps to reduce the rising economy-wide leverage, and we expect the reforms about to offset the rise in debt and financial risk is somehow up to the self-determination of China.
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