China’s massive debt burden is back in focus. Credit rating agency Moody’s downgraded China this week, warning that the country’s financial health is suffering from rising debt and slowing economic growth. It’s the first time the agency has cut China’s rating in nearly three decades.
Fears about debt levels in the world’s second-largest economy have been flagged before. The International Monetary Fund pushed Beijing to “urgently address” the issue last year.
So just how bad is China’s debt problem? Here are the key things to know:
The problem has been years in the making
As growth in the West collapsed following the global financial crisis of 2008, China’s local governments and state-owned companies borrowed heavily to build cities and roads, invest in businesses and bolster financial markets.
That spending spree has resulted in a domestic debt hangover, particularly among some of the country’s bloated and inefficient state-owned companies.
Corporate debt in China soared to around 170% of GDP in 2016, roughly double the average of other economies, according to the Bank of International Settlements. In 2008, China’s figure stood at about 100%.
Beijing is trying to solve it …
The Chinese government is well aware it has a problem.
Authorities have introduced a series of measures in recent years to tackle local government debt and bad bank loans. They have also tried to reduce the economy’s dependence on credit as a way to fuel growth.
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