China's debt not excessive despite high leverage, CF40 expert says

China's debt across its corporate, government and household sectors should not be viewed as excessive despite it reaching a staggering 363 trillion yuan ($50.42 trillion) or equal to 288 percent of its GDP by the end of 2023, according to a senior researcher at the China Forum 40 (CF40) think tank on Monday.

The sheer volume of debt and its rapid increase have raised concerns among observers, yet these figures alone do not confirm an over-accumulation of debt within China, said Zhang Bin, the non-resident senior fellow at CF40 and deputy director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences.

He showed that over the last 10 years, China has encountered minimal inflationary pressures, with the annual consumer price index (CPI) growth consistently below the 2-percent mark, and the Chinese renminbi has appreciated 15 percent against a basket of currencies. 

Zhang interpreted these trends as indicators of balanced financial asset growth and stable purchasing power.

In comparison to global standards, China's financial assets to its GDP were relatively modest, he said. For instance, the financial assets-to-GDP ratios of the U.S. and Japan are significantly higher at 13.4 and 15.7 respectively, compared to China's 3.6. This, according to Zhang, illustrates that China's financial asset volume is not extraordinary.

He further argued that debt leverage ratios are not suitable metrics for evaluating debt risk. A prudent total debt growth rate should align with achieving the core inflation target of 2 percent. The path to reducing leverage and debt burden lies in maintaining low-interest rates and modest inflation, he said.

Government debt comprises a significant portion of total debt growth, suggesting that government borrowing plays a countercyclical role, stabilizing overall demand by offsetting fluctuations in private sector spending, according to Zhang.