It seems to be a commonly held view in the West that China’s economic success heralds misfortune. Year after year, voices are heard claiming that the country’s good fortune is built on reckless and irresponsible borrowing that presages collapse — a catastrophe that is forever imminent.
As part of this false analysis, Western rating agencies have been sounding the alarm over what they interpret as mounting credit risks in China’s financial sector for many years.
The worry they spark each time they warn that China is supposedly going to hit a “debt iceberg” necessitates top Chinese government officials explaining to the world what the country’s debt level is, how it is likely to affect China’s overall economic well-being and what they are doing to address the risks.
That’s why, at a news conference held on the sidelines of the top legislature’s annual session on Thursday, Finance Minister Liu Kun addressed the topic once again.
He clarified that the total government debt ratio stood at 37 percent of the national GDP at the end of 2018, a little higher than the 36.2 percent for 2017, but still much lower than the globally accepted warning level of 60 percent.
Given that the ratio is more than 200 percent for Japan and around 100 percent for other major economies such as the United States and France, it is hard to understand why China, with a much higher economic growth rate, is so often identified as cause for concern.
Some might point to China’s growth-obsessed local governments, which have long been criticized for their opaque ways of raising funds to invest in massive infrastructure projects, often using financing institutions known as “local government financing vehicles”. Much of the so-called hidden debts have been raised through such vehicles.
Yet thanks to deleveraging, the curbing of irregularities and the standardizing of government financing, among other measures that have been taken to rein in the hidden debts and prevent systemic debt risks, China’s local government debts are under control.
As Liu noted, the debt balance of local governments stood at 18.39 trillion yuan ($2.74 trillion), well below the official ceiling of 21 trillion yuan. The local debt ratio of 76.6 percent is also much lower than the international warning line of 100 percent to 120 percent.
The government has said there will be no major changes in the government debt ratio in the years to come versus the level in 2017, and, more important, it has vowed to increase the transparency of government debts.
Hopefully, this will help root out the exaggerated fears about a systemic financial meltdown, so that doomsayers will no longer have an excuse to cry wolf.