As of the end of last year, China’s debt-to-GDP ratio reached a record high of nearly 300%. Although the increase in debt of central and local governments had some negative effects, it is analyzed that the slowdown in economic growth was fundamentally decisive.
National Institute of Financial Development (NIFD), a think tank under the Academy of Social Sciences, recently released a quarterly report on macro-leverage. According to the report, the ratio of macro-leverage, which represents the ratio of total non-financial debt to nominal GDP, increased by 13.5 percentage points year-on-year to 287.1 percent in 2023. In addition, both central and local government debts increased by more than 10 percent last year.
As of the end of 2023, the central government’s debt reached 30.8699 trillion yuan, an increase of 4.16 trillion yuan over a year. With this achievement, the fiscal deficit ratio exceeded the target of 3 percent to 3.8 percent. In addition, the local government’s debt amounted to 40.74 trillion yuan last year, falling within the target of 42.17 trillion yuan set at the beginning of the year. However, the annual debt increase amounted to 5.68 trillion yuan, exceeding the target of 4.52 trillion yuan by more than 1 trillion yuan.
This is related to measures such as issuing special bonds by the central government to solve the serious debt problem surrounding local government financing vehicles (LGFVs), the report noted.
As a result, the debt ratio of central and local governments increased by 5.3% year-on-year to 55.9% last year. In addition, the debt ratios of households and non-financial companies also rose 1.3% and 6.9% year-on-year, respectively. Basically, there was no significant change. Nevertheless, the sharp increase in the total debt ratio in a year seems to be more directly related to the slow economic growth rate.
According to the report, China’s GDP growth rate announced in the middle of this month was 5.2% year-on-year, easily meeting its annual target of around 5%. However, this was real GDP considering inflation. The nominal GDP growth rate, which is used as the denominator of the macro-leverage ratio, was only 4.6% last year. This is less than 4.8% in 2022.
