China’s debt likely to soar over next 5 years

BEIJING • China’s debt is poised to soar over the next five years, severely reducing the chances the nation can avoid a financial crisis.

Bloomberg Economics economists Fielding Chen and Tom Orlik estimate China’s total debt will reach 327% of gross domestic product (GDP) by 2022, double the level in 2008. That will put China among the most indebted countries in the world.

“The rapid growth and high level of China’s debt have already placed them in the danger zone for a financial crisis,” said the economists in a note published yesterday.

“Adding debt equivalent to almost 70% of GDP in the next five years wouldn’t mean a crisis is inevitable, but it would severely reduce the chances of avoiding one.”

Central bank governor Zhou Xiao-chuan, who has hinted he’ll soon retire, recently warned of the risks in company and household debt, saying that corporate borrowing was “very high” and that the nation needs to be on guard against excessive optimism that could spark a sudden drop in asset prices.

Economic expansion is expected to slow to 5.8% in 2022 from 6.7% in 2016, the economists said in the note. — Bloomberg