China’s economy risks drowning in a river of debt

Rising concerns about ballooning loans propping up the property landscape add to an atmosphere of anxiety

A river of debt runs through China’s economy. But how deep it is, remains a murky mystery.

Analysts and economists have always known it was there, bubbling beneath the surface. Now, it has turned into a torrent, bursting through key sectors of the world’s second-largest economy, and immersing local governments.

Rising concerns about ballooning loans across the property landscape have only added to an atmosphere of anxiety.

“China’s economy is hitting a great wall,” Robert Z Aliber, the prominent University of Chicago economist, told Fortune magazine last month.

His comments illustrate the depth of the construction industry meltdown and the perils of debt levels seeping into the entire economy.

By the numbers:

  • Real estate giant Evergrande saw its shares hit an all-time low on Wednesday after missing a debt payment deadline.
  • The troubled group has been forced into a fire sale of assets to pay off US$300 billion in liabilities.
  • Kaisa Group is another major property company in trouble.
  • Trading on the listed firm was suspended in Hong Kong on Wednesday amid repayment fears.
  • Kaisa has outstanding loans of at least $12 billion.
  • On the same day, Sunac China offloaded slightly more than $1 billion in American depositary shares in KE Holdings.
  • The “disposals” will help the property developer focus on the “development” of its main business.

The true levels of China’s debt go far beyond the real estate sector.

Antonio Graceffo of the LETU American University in the Mongolian capital of Ulaanbaatar

What was said: “China’s real estate market has been called the most important sector in the world economy. Valued at about $55 trillion, it is now twice the size of its US equivalent, and four times larger than China’s GDP,” George Magnus, of Oxford University’s China Centre, said.

Delve deeper: The problems plaguing the property sector are just the tip of a Titanic-like iceberg. Data released by the Bank for International Settlements revealed that overall debt in China has increased 13-fold in the past 15 years. It is now nearly three times the size of the entire economy.

Red tide: “The true levels of China’s debt go far beyond the real estate sector. At the end of 2020, China’s foreign debt, including US dollar debt, stood at roughly $2.4 trillion,” Antonio Graceffo, of the LETU American University in the Mongolian capital of Ulaanbaatar, said.

High rise: “Corporate debt is $27 trillion, while public debt exceeds 300% of GDP,” Graceffo, the author of Beyond the Belt and Road: China’s Global Economic Expansion and A Short Course on the Chinese Economy, wrote in a commentary for foreign policy website War on the Rocks.

China Factor comment: Winter is coming for President Xi Jinping’s ruling Communist Party in the shape of an economic blizzard. Time for the rest of the world to wrap up warm.