China’s public debt will exceed GDP by 2027 – Kommersant

By 2027, China’s sovereign debt will exceed 100% of the gross domestic product. Such assessments are given in report Scope Ratings, a European rating agency, downgraded China’s credit rating from A+ to A in May this year. “Deteriorating medium-term economic forecasts further increase pressure on China’s public finances, and the pace of reforms has slowed down,” said Eiko Sievert, an analyst at the agency.

China’s public debt has been on the rise for a long time, the report says, a decade before the pandemic. In 2010, it was 34% of GDP, and by 2019 it has already grown to 60%. Financial stimulus measures during the pandemic have pushed government debt to 77% of GDP in 2022. Therefore, according to the agency’s experts, it is quite logical that in a few years it will grow to 100%. Experts note that China’s centralized economic model is capable of stimulating effective structural reforms, given the country’s tight control over large parts of the domestic economy, including the banking sector. If such control were not in place, Scope Ratings believes, China’s current problems in the real estate sector would lead to much more serious consequences.

Nevertheless, the risk of choosing the wrong financial policy of the PRC is now very high, and, as experts point out, factors such as demographic shifts interfere with the growth targets set by the Chinese leadership. In particular, in 2022, the population of China decreased by 850 thousand people, and this is the first reduction in the country’s population since 1961. This could derail the Chinese government’s plans to double the economy by 2035, with an average annual growth rate of around 4.8%. Scope Ratings believes that growth within 4% is more likely.

Alena Miklashevskaya