Submitted by Taps Coogan on the 16th of May 2018 to The Sounding Line.

Based on available figures, Chinese local government debt increased by roughly $179 billion in 2017 and Chinese central government debt increased by roughly $521 billion. That means that, together, total Chinese government debt increased by roughly $700 billion in 2017, only $9 billion less than estimates for US federal, state, and local governments combined in 2017. Due to the China’s rampant shadow banking system and morass of government owned ‘zombie’ companies, the true increase in Chinese government debt is likely meaningfully higher than the reported figures and is thus likely greater than the increase in total US government debt, potentially by a wide margin. As the IMF has repeatedly warned: “China’s official government accounts do not capture a large amount of fiscal spending delivered through off-budget units.” The result is potentially billions of dollars of spending and debt that don’t get counted in China’s ‘official’ government debt figures.

To be clear, China’s central government debt-to-GDP is significantly lower than the US (47.8% versus 104%), Even when its heavily indebted local government debts are included, total Chinese government debt-to-GDP is lower than the comparable figure in the US (70% versus 120%). Nonetheless, China’s total government debt growth rate is now significantly faster than in the US and while the US is likely to accelerate its borrowing in coming years, so is China. All together, that means that the various layers of the Chinese government are likely to continue borrowing roughly as much as the US government.

Despite racking up hundreds of billions of dollars of debt a year, the Chinese government is loaning trillions of dollars to emerging markets and developed economies around the world, including the US. Only in today’s bizarre world of ever increasing asset prices, ultra-liquidity, and low interest rates can every major economy in the world be borrowing from a nation which is itself increasingly indebted.

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