Find out more about what China’s debt is and what experts predict

Prospects for the development of the Chinese economy: what is China’s debt?

The Chinese economy this year will be stable as the China’s debt problem is solved. Now the growth rate of GDP will be about 6.5%. The following factors will contribute to this – further liberalization of the economy, first of all, of the climbing China financial sector, – continued stimulation of economic growth by public investments, implementation of projects within the framework of the Belt and Path initiative with the involvement of government funding and purchases of equipment produced in China, – some recovery in demand for Chinese products in the US and EU markets.

At the same time, some concerns are caused by the “post-Congress period”. Now the Chinese authorities are no longer bound by the need to maintain socio-economic stability “at any price” and next year, they will proceed to the active solution of socio-economic problems.

10 and 20 us dollar bill

First of all, this is the growing debt burden of enterprises and regional authorities, the functioning of the so-called “companies-zombies” and excess production capacity.

At the moment, the solution to these problems has become critically important. However, given the sharply increased complexity of the Chinese economy – the only correct and effective recipe for solving these problems does not exist. It is obvious that the abrupt actions of the Chinese authorities in this direction can lead to negative consequences. For example, reducing the debt burden of enterprises and regional authorities by limiting lending can lead to a reduction in their investment programs and to their hidden bankruptcy.

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Regarding overcapacity, the discussion has recently intensified – “what is to be considered overcapacity in the industry?”. Some Chinese companies have announced plans to increase output. For example, Baowu Steel group Corp. is the second in the world after ArcelorMittal, which was created through the merger of two steelmaking state-owned companies – Baosteel Group and Wuhan Iron and Steel.

China debt as percentage of GDP has been successfully lowered. At the same time, the most important direction of reforms in the Chinese economy will be the implementation of Xi Jinping’s pre-Congress promises about financial politics. In the middle of November, the Chinese government announced plans to open within the next several years the financial services market and to own up to 100% – instead of less than 50% today joint ventures have, which are working in these sectors.