China is witnessing a rising external debt to GDP, however the propositions say otherwise

The dragon (China)’s debt has soared dramatically over the last decade and has become one of the major economic challenges that has ever been confronted by the ruling Chinese Communist Party, that is turning 100 years old this week. Beijing administration has identified the rising debt to become a potential threat to the economic stability of the country, and in recent years the administration has tried to decline the country’s growing reliance on debt for increasing their growth rate. However, all those efforts were put on halt and registered a pause for the majority of last year owing to COVID-19.

The pandemic previous year had taken a toll on China’s economic growth and made it inevitable for the authorities to ease out loan process for major companies. As a result of which, China’s external debt that is measured against the size of the GDP registered a rise to record levels in 2020. China had previously accumulated rapid debts amid the global financial crisis in 2007 and 2008, wherein the authorities rolled out a massive stimulus package largely funded which were provided via bank loans. China’s debt levels got stabilized for several years before topping the levels to approach an all-time high of about 290% of GDP in the third quarter previous year.

Other major economies like the U.S., major countries in Europe, Japan also witnessed a rise in debt-to-GDP ratios. It occurred due to the fact that the governments all over the world had to increase spending and fiscal expenditure to support businesses and households in tackling the economic challenges posed by the pandemic. The corporate sector of China had accounted for the biggest proportion of total debt at over 160% of the GDP. However, the government debt constituted the largest share of the external debt in both the Japan and the U.S.