Reports on China issued by Samsung Economic Research Institute
This report assessed China's debt status by three categories; government, industry and households. Government debt is at an appropriate level, but excessive local government debt can be a potential threat. For corporate debt, it is well above the OECD standard for a safe debt to GDP ratio range and is continuing to soar. Meanwhile, China's household debt is low.
The rapid rise in local government debt is attributable to the aggressive fiscal policies in response to the global financial crisis. Although the central government is attempting to reduce the debt, effectiveness is doubtful because it is also encouraging investment in its pursuit of urbanization. Indeed, fiscal expansion is also the reason for the rise in corporate debt. In particular, risks of non-performing loans in the corporate sector are too high. In comparison, the main reason for the rise in household debt lies in the real estate market, which accounts for a significant portion in household asset.
While the question "Can the rise in local government debt be contained?" is hard to answer, growth in corporate debt is expected to slow due to the global economic slowdown. The corporate sector is in a situation where certain industries are suffering from severe overproduction due to the uncertainty of a national economic recovery. As for household debt, it is expected to grow faster than corporate debt on the back of a booming real estate market.
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