Update | China plans rise in government debt to prune corporate red ink
Government debt ratio only 41.5 per cent of GDP, a fraction of other countries’ such as the US, Japan, France, Germany and Brazil
China will boost government borrowing to lower debt in the corporate sector, the Ministry of Finance has announced.
The government has the capacity to do so because its debt levels are still low compared with other major economies, the ministry said on Thursday. The government debt ratio – including direct and contingent debt – was just 41.5 per cent of gross domestic product at the end of last year.
This was much lower than Japan’s 200 per cent, France and the United States’ 120 per cent, Brazil’s 100 per cent and Germany’s 80 per cent, it said.
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The debt ratio of local Chinese governments was 89.2 per cent at the end of 2015 – up from 86 per cent the year before.
“The government can increase its leverage ratio to support a gradual reduction in the corporate sector’s leverage ratio ... China’s local government debt risks are generally under control,” the ministry said.
The ministry’s statement comes amid concerns about the mainland’s debts, especially over its rising corporate leverage ratio.
Combined debt in government, corporate and household sectors has been estimated by analysts to be between 250 and 280 per cent. Corporate sector debt is believed to be around 120 to 160 per cent of GDP.