China is full of debt 4》The turtle laughs and the turtle has no tail! U.S. government debt, China’s people-oriented debt

(AI synthesis diagram)

[Reporter Gao Jiahe/Comprehensive Report] China's local governments are stuck in the quagmire of hidden debts and have to resort to the "third wave of debt reduction" actions, announcing a package of debt reduction plans with a total scale of 12 trillion yuan (the same below; approximately NT$54 trillion) in an attempt to replace the high-interest hidden debts of local government financing vehicles (LGFV). According to the latest data from institutions such as the Bank for International Settlements (BIS) in 2026, China's overall debt pressure (especially the private and corporate sectors) has surpassed that of the United States, and its structural risks are higher. Moreover, the United States is a government-backed debt, while China is a citizen-oriented debt.

As of 2026, the U.S. federal government debt will account for approximately 123% to 126% of GDP (total debt exceeds US$40 trillion). However, the U.S. private non-financial sector (businesses and households) has experienced years of deleveraging. According to BIS statistics at the beginning of this year, the proportion of U.S. private sector credit to GDP has dropped to a new low of approximately 139.7%, which means that U.S. debt is highly concentrated on the "government."

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China's officially announced central and local general debt accounts for about 30% to 99% of GDP (depending on the inclusion of some local special debts), which seems extremely low, but the real debt lies in the private sector and hidden local debt; according to estimates by BIS and other institutions, the proportion of China's private non-financial sector (enterprises, households) credit to GDP has soared to 204.1%, ranking highest among major economies. If the implicit debt of the government, LGFV (local financing vehicle), corporate and household debt are added together, China's overall debt leverage ratio has already approached or exceeded 300%.

China's three major debt resolution actions have different costs each time, but they are all debt transfers and ultimately the people's debt. The first wave was the triangular debt of state-owned enterprises in the late 1990s. Officials established asset management companies to absorb about 1.4 trillion bank bad debts and promoted "grabbing large state-owned enterprises and letting go of small ones." Nearly 45 million state-owned enterprise employees were laid off (unemployed), leaving grassroots workers to bear the pain of state-owned enterprise reform.

The second wave was the local government debt swap in 2015. Officials launched a "local debt swap" of more than 12.2 trillion yuan, allowing local governments to issue low-interest public bonds to repay high-interest commercial loans, "exchanging time for space." Although the crisis was suspended, it failed to prevent the continued expansion of LGFV's hidden debt.

The current third wave of debt reduction is facing the dilemma of local finances drying up after the housing market crash and LGFV facing default. The so-called 12 trillion yuan does not actually "reduce" debt, but once again postpones bad debts and requires LGFV to transform into a market or exit. The price will still be paid by the people.

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