High Corporate Debt Levels Cause Wariness Over Chinese Economy
Created: 2012-08-09 16:33 EST
China's Banking Regulatory Commission has estimated that by the beginning of 2012 the country had 55 trillion yuan in outstanding loans. That’s about 8.63 trillion US dollars. This figure surpassed GDP by a near one-fifth margin.
The current corporate debt-to-GDP ratio was measured at 107 percent in 2011, the highest in the world. This is concerning to some. Li Yang, the vice president of the Chinese Academy of Social Sciences has warned against too many further government loans, fearing they could lead to even more unsustainable debt levels.
A few areas of industry in China, such as civil aviation, have particularly high debt ratios. This suggests government subsidies and capital intensive, high margin exports have yet to become major profit generators.
Many economists are concerned that when these debts become due and payable, but cannot be repaid because the investments are not turning in profits, it would place further strains on an already slowing economy.