China’s “grey rhino” debt-fuelled economy
October 14, 2019 - China has been financing its rapid economic growth with growing debt. Since 2001, China’s debt pile has more than doubled to over 300% of GDP as Beijing boosts infrastructure spending.
Now, China has a $40 trillion problem. That’s the country’s total government, corporate and household debt load the first quarter of 2019, according to the U.S.-based the Institute of International Finance. That’s more than 300 per cent of the country’s total annual economic output. China’s Communist Party (CCP) puts the figure at just 55.4 per cent.
Under the presidency of Hu Jintao, gross domestic product (GDP) leapt from $1.34 trillion in 2002 to $8.28 trillion in 2012. However, after the 2008–09 financial crisis, the government loosened credit controls and approved large infrastructure programmes to spur economic growth.
Now, President Xi Jinping has committed to a “Chinese dream” of national rejuvenation and a new era of global influence. Xi’s ambitious strategies include modernising the People’s Liberation Army, his Belt and Road initiative (BRI) and “Made in China 25” (MIC25) economic dynamo.
China’s BRI is the most ambitious infrastructure effort in history. Involving more than 60 countries, China’s investment in BRI could reach $1.2–1.3 trillion by 2027, according to Morgan Stanley.
Launched by the CCP four years ago, Xi has made MIC25 his signature project. The strategy defines ten core industries, such as robotics, artificial intelligence, power equipment and next-generation IT, in which China wants to become a global superpower.
Policymakers now face a choice of two evils -- either increase the “grey rhino” risk of rising debt or face the “black swan” threat of a further economic slowdown. China’s GDP grew 6.2% year-on-year in the second quarter, down from 6.4% in the first three months of 2019, while eye-watering debt continues to spiral upwards.
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