Xi Jinping’s dream of strengthening the country has raised nearly 1,400 trillion yuan in debt. China’s debt spiral has affected the world

First submission 10-13 23:53

Update time 10-14 06:50

Xi Jinping’s dream of becoming a powerful nation has plunged China into a debt spiral. (AFP)

[Compiled by Wei Guojin/Taipei Report] The Wall Street Journal reported that Chinese President Xi Jinping has invested trillions of dollars in building China into a technological and military power. Bank for International Settlements (BIS) data shows that since he took power at the end of 2012, China's total non-financial sector credit has jumped by more than 43 trillion U.S. dollars (NT$1,383.74 trillion). Xi Jinping’s ambition to become a powerful country is causing China to fall into a debt spiral that suppresses the economy internally and harms its trading partners externally.

The report said that the debts of many countries have been rising, causing investors to feel uneasy, but few countries have seen their debts soar more rapidly than China.

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Last year, China's total non-financial sector credit, covering corporate, government and household lending, exceeded 300% of gross domestic product (GDP). Not only was it 60 percentage points higher than the end of 2019, it was also much higher than the U.S. level.

BIS data shows that since Xi Jinping came to power at the end of 2012, total credit to China's non-financial sector has jumped by more than $43 trillion, with large sums of money being wasted on building factories and housing for insufficient demand, triggering devastating price wars and damaging profits and wages.

China's debt has also increasingly become a world problem. Chinese companies, which must repay huge debts, are churning out cars, solar panels and electronics in excess of what the domestic market needs. For this reason, exporters continue to export these products to overseas markets, causing China's annual trade surplus to exceed US$1 trillion.

Even as trade tensions rise between China and many countries, including Europe, which is increasingly unhappy with the influx of Chinese electric cars and other products, Beijing appears unwilling to change course.

The report said that one of the challenges facing China is that loss-making enterprises are saddled with huge debts. As the overall growth stagnates, related debts are difficult to repay. However, the reduction of new loans to such enterprises may cause Chinese state-owned banks to face huge losses.

Camille Boullenois, deputy director of Rhodium Group, said, "If you want to change this system, you must accept huge losses. I think the Chinese government is not ready yet. The most likely situation is that the situation will slowly worsen, the financial system will gradually decline, and the efficiency of promoting growth will become less and less."

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