China’s trillions in assets will defuse debt time bomb, says state think tank

China’s state researchers say government debt is not as risky as it might look.

Scholars at the Chinese Academy of Social Sciences, a government think tank in Beijing, analysed several years worth of government balance sheets and concluded that the state’s massive assets can offset the debt threat.

The academy calculates in a new report that government assets stood at about 125.4 trillion yuan (US$19.2 trillion) in 2015, or about 1.8 times GDP. Holdings include fixed assets such as buildings and cars, resources like land and oilfields, plus hard cash in government deposits, the social security fund and financial institutions.

However, these are not easily liquidated in a crisis and the researchers also warn of hidden dangers. They cite so-called implicit debt, or obligations that have an implicit state guarantee. That includes bond issuance by quasi-governmental organisations like policy banks, state railway debt, contingent local government liabilities, non-performing loans by state-owned financial institutions, hidden foreign debt and a potential shortfall in the country’s pension fund.

“China’s government sits on many resources available for use and has great resilience and flexibility to fend off risks,” researchers wrote. They estimate that the ratio of government net assets to gross domestic product is greater than 80 per cent, offering a generous cushion against financial instability.