China non-financial debt exceeds 300% of GDP

China's non-financial sector debt has surged to over 300% of its GDP, according to data from the Bank for International Settlements. This increase, which rose by 60 percentage points since late 2019, includes credit to corporations, governments, and households, significantly outpacing levels seen in the United States.

Much of this debt has been directed toward industrial capacity and residential construction. However, insufficient domestic demand has led to resource waste and intense price competition. To service these debts, Chinese firms are increasingly exporting surplus goods—such as electric vehicles, solar panels, and electronics—to global markets, contributing to a trade surplus exceeding $1 trillion. This trend has heightened trade tensions with international partners, including Europe.

While the central government's debt remains relatively low at approximately 30% of GDP, local government obligations are substantial. When including local government financing vehicles, the broader government debt reached an estimated 127% of GDP last year. Economists suggest that while a sudden financial crisis may be avoided due to reliance on domestic savings, the current model of low-cost credit and subsidies for loss-making firms may lead to a gradual decline in economic efficiency and growth.