China Hit by 'Zero-COVID' Policy, National Debt Approaches Three Times GDP

[Image source=Yonhap News]

[Asia Economy Reporter Lee Ji-eun] As China implemented large-scale stimulus measures to counter the economic slowdown caused by COVID-19, its debt has surged to nearly three times its gross domestic product (GDP).

On the 7th, Nihon Keizai Shimbun reported, citing a recent report from the Bank for International Settlements (BIS), that China's total debt ratio to GDP, excluding financial institutions, reached a record high as of the end of June.

China's total debt stood at $51.8744 trillion (approximately 68,526 trillion won) as of the end of June, equivalent to 295% of GDP. This is the largest scale since the end of 1995. It is comparable to Japan's debt-to-GDP ratio of 296% at the end of March 1998, during the Asian financial crisis. China's debt-to-GDP ratio has rapidly expanded from 138% in 2008 to 232% in 2015 and 243% in 2017.

Local governments, hit by the economic impact of the government's 'Zero COVID' policy, have increased bond issuance one after another, causing a surge in debt. Due to the lockdown of Shanghai in April by Chinese authorities to prevent the spread of COVID-19, China's real GDP from April to June increased by only 0.4% year-on-year. In response, the Chinese government promoted new bond issuance by local governments as part of economic stimulus measures to push forward infrastructure construction. From January to November this year, the scale of bonds issued by local governments in China reached 7.2761 trillion yuan, an increase of 100 billion yuan (approximately 18 trillion won) compared to the same period last year, marking an all-time high.

However, with private investment sharply declining, growth drivers to offset the debt are being depleted. The People's Bank of China announced that private enterprises' asset investment increased by only 2% year-on-year until October. This contrasts with an 11% increase in investment by state-owned enterprises.

Nihon Keizai stated, "Due to the Zero COVID policy, economic outlook has become uncertain, and private companies and households are reluctant to increase loans," adding, "With the impact of birth control policies leading to a declining population, China's economic growth is expected to slow down."