China’s unofficial debt to GDP ratio is 300%.
. Getty
The US-China trade war has created a great deal of anxiety in financial markets. But it will come to an end sooner or later. Washington will end it, the way it did with Mexico and Canada.
But Washington cannot end China’s debt problem, which could be a big problem for the country’s economy and the world economy.
Which is to say that China’s biggest problem isn’t the trade war. It’s the growing debt problem, which finances bubbles at home and abroad.
To be fair, America has a debt problem, too. So does Japan. America’s debt to GDP ratio is 105.40%, according to Tradingeconomic.com. Japan’s debt to GDP ratio is 250%.
These are large numbers. But they are fairly accurate and well-known. So the debt prices and yields of the two countries fully reflect the risk premiums investors must receive in holding them in their portfolio.
That isn’t the situation with China’s debt.
Officially, it is a small number: 47.60%. Unofficially, it’s hard to figure it out. For a good reason: the government is both the lender and the borrower. One branch of the government lends money to another branch of government.
Government-owned banks, for instance, lend money to State Owned Enterprises (SOEs) and Town Village Enterprises (TVEs).
