Is China's debt worse than us?
The “good news” is that most economists agree that China's debt problems are worse than ours. But they disagree about exactly how much worse, or how much it matters. Deficit fundamentalists fear that China, the US and many other countries are headed into debt traps which will reduce economic growth.
Li Daokui has estimated that local Chinese authorities had by 2020 run up a much bigger tally of debt than previously realized, at some 90 trillion yuan ($12.6 trillion). Most of this debt came from building infrastructure, much of which is unlikely to generate revenues sufficient to pay off the obligations.
Corporate debt adds another 123 per cent of GDP worth of liabilities, a large chunk of which is owed by state-owned enterprises (SOEs) [2]. In addition, household debt - mostly mortgages - is 61 per cent of GDP. Altogether, China's gross national debt is over 300 percent of GDP.
| Economy by Gross Debt | % of GDP (2023) |
|---|---|
| 🇸🇬 Singapore | 168% |
| 🇮🇹 Italy | 144% |
| 🇺🇸 United States* | 123% |
| 🇫🇷 France | 110% |
- Japan. Japan has the highest percentage of national debt in the world at 259.43% of its annual GDP. ...
- United States. ...
- China. ...
- Russia.
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.
U.S. debt to China comes in the form of U.S. Treasuries, largely due to their safety and stability. Although there are worries about China selling off U.S. debt, which would hamper economic growth, doing so in large amounts poses risks for China as well, making it unlikely to happen.
China was expected to experience a rip-roaring recovery after it lifted strict COVID-19 restrictions. But almost a year after the measures ended, the Chinese economy seems to be stumbling. Prices have fallen. Exports and imports have plummeted.
| Characteristic | National debt in relation to GDP |
|---|---|
| Macao SAR | 0% |
| Brunei Darussalam | 2.06% |
| Kuwait | 3.08% |
| Hong Kong SAR | 4.27% |
The United States pays interest on approximately $850 billion in debt held by the People's Republic of China. China, however, is currently in default on its sovereign debt held by American bondholders.
Why is China in a debt crisis?
Why did China get into a debt problem? Figures show that China's over-borrowing of the public and corporate sector can basically be traced back to the huge stimulus package and lax monetary policy that Chinese economic authorities introduced during the global financial crisis in 2008-2009.
Foreign holders of United States treasury debt
Of the total 7.6 trillion held by foreign countries, Japan and Mainland China held the greatest portions, with China holding 868.9 billion U.S. dollars in U.S. securities. Other foreign holders included oil exporting countries and Caribbean banking centers.
Of the $33T of debt, roughly 78% is owned by the public (70% US vs 30% International). The major US public owners include the FED ($6T, but they are no longer buyers), mutual funds, banks, states, pension funds and insurance companies.
The least indebted state is Oklahoma, according to the report, followed by Iowa and a tie for third with New Hampshire and Nebraska. The fifth best state in the category is Ohio. The next five best states, from best to worst, are Wyoming, Indiana, and Wisconsin, with Vermont and South Dakota tied in their ranking.
Many people believe that much of the U.S. national debt is owed to foreign countries like China and Japan, but the truth is that most of it is owed to Social Security and pension funds right here in the U.S. This means that U.S. citizens own most of the national debt.
| Country/Region | External debt (USD) | |
|---|---|---|
| Per capita | Total | |
| United States | 73,507 | 24.5 trillion |
| United Kingdom | 134,000 | 9.0 trillion |
| Japan | 34,832 | 4.34 trillion |
Learning about Countries and Their Debt
The best example can be taken from Hong Kong (it is a one of the debt free countries), whose economy has the least debt to GDP ratio. It is an almost debt free country. It has a well-regulated financial system and large foreign reserves.
Tax hikes alone are rarely enough to stimulate the economy and pay down debt. Governments often issue debt in the form of bonds to raise money. Spending cuts and tax hikes combined have helped lower the deficit. Bailouts and debt defaults have disadvantages but can help a government solve a debt problem.
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.
Why does China own so much of America's federal debt? America has a current account deficit, mainly due to a trade deficit with China. This means that the American demand for yuan is increasing at a faster rate than the Chinese demand for dollars.
What would happen if the US stopped trading with China?
As a result, if the United States and other countries were to stop trading with China, it would disrupt global supply chains and cause economic disruptions in many countries.
Nations like China typically hold US debt in the form of various US Treasury debt, including bonds and other notes. None of these instruments allow debt holders to simply demand repayment…you get the terms and conditions associated with the bond and there's little flexibility to “calling in all of their debts”.
China owes the United States $1.3 trillion, which is the most debt out of all the countries that are its debtors. Japan was the primary debt holder until 2008, but now comes in second place, with $1.2 trillion. Other countries with outstanding U.S. debt include Russia, India and South Korea.
26. China. China had the second-largest total wealth of $84.48 trillion in 2022. Being one of the largest economies in the world, China makes it to our list of the wealthiest countries by per capita net worth.
"The likelihood of the prediction that China's GDP will one day overtake that of the U.S. is declining," Eswar Prasad, a professor at Cornell University and a former International Monetary Fund official in charge of China, told Nikkei in a recent interview.
